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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950152-01-001484.txt : 20010326
<SEC-HEADER>0000950152-01-001484.hdr.sgml : 20010326
ACCESSION NUMBER: 0000950152-01-001484
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010323
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HAWK CORP
CENTRAL INDEX KEY: 0000849240
STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728]
IRS NUMBER: 341608156
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-13797
FILM NUMBER: 1577953
BUSINESS ADDRESS:
STREET 1: 200 PUBLIC SQ STE 30-5000
STREET 2: STE 29-2500
CITY: CLEVELAND
STATE: OH
ZIP: 44114
BUSINESS PHONE: 2168613553
MAIL ADDRESS:
STREET 1: 200 PUBLIC SQUARE
STREET 2: STE 29-2500
CITY: CLEVELAND
STATE: OH
ZIP: 44114-2301
FORMER COMPANY:
FORMER CONFORMED NAME: HAWK GROUP OF COMPANIES INC
DATE OF NAME CHANGE: 19950417
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>l87006ae10-k.txt
<DESCRIPTION>HAWK CORPORATION FORM 10-K
<TEXT>
<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 001-13797
HAWK CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 34-1608156
- ---------------------------------------------- ----------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
200 PUBLIC SQUARE, SUITE 30-5000, CLEVELAND, 44114-2301
OHIO ----------------------------------------------
- ----------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 861-3553
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
<S> <C>
Series B 10.25% Senior Notes due 2003 New York Stock Exchange
Class A Common Stock, par value $.01 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 16, 2001, the registrant had 8,552,920 shares of Class A Common
Stock, net of treasury shares, and 0 shares of Class B non-voting Common Stock
outstanding. As of that date, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $34,348,977 (based upon the closing
price of $6.50 per share of Class A Common Stock on the New York Stock Exchange
on March 16, 2001). For purposes of this calculation, the registrant deems the
3,268,462 shares of Class A Common Stock held by all of its Directors and
executive officers to be the shares of Class A Common Stock held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2001 Proxy Statement of Hawk Corporation are incorporated
by reference into Part III of this Form 10-K.
As used in this Form 10-K, the terms "Company," "Hawk" and "Registrant"
mean Hawk Corporation and its consolidated subsidiaries, taken as a whole,
unless the context indicates otherwise. Except as otherwise stated, the
information contained in this Form 10-K is as of December 31, 2000.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
Hawk Corporation, founded in 1989, is a holding company, the principal
assets of which consist of the capital stock of its manufacturing subsidiaries,
Friction Products Co., S.K. Wellman Corp., S.K. Wellman SpA, Hawk Composites
(Suzhou) Company Limited, Helsel, Inc., Sinterloy Corporation, Clearfield
Powdered Metals, Inc., Allegheny Powder Metallurgy, Inc., Net Shape Technologies
LLC, Hutchinson Products LLC, Hutchinson Products de Mexico, Hawk Brake, Inc.,
Quarter Master Industries, Inc., Tex Racing Enterprises. Inc. and Logan Metal
Stampings, Inc. Through its subsidiaries, Hawk operates primarily in four
reportable segments: friction products, powder metal, performance automotive and
motor components. The Company's friction products are made from proprietary
formulations of composite materials that primarily consist of metal powders,
synthetic and natural fibers. Friction products are the replacement elements
used in brakes, clutches and transmissions to absorb vehicular energy and
dissipate it through heat and normal mechanical wear. Friction products
manufactured by the Company include friction components for use in brakes,
transmissions and clutches in aerospace, construction, agriculture, truck and
specialty vehicle markets. The Company's powder metal components are made from
formulations of composite powder metal alloys. The powder metal segment
manufactures a variety of components for use in fluid power, truck, lawn and
garden, construction, agriculture, home appliance, automotive and office
equipment markets. In its performance automotive segment, the Company
manufactures brakes, clutches and gearboxes for the performance automotive
markets. Through its motor segment, the Company designs and manufactures
die-cast aluminum rotors for small electric motors used in appliances, business
equipment and exhaust fans. The Company focuses on manufacturing products
requiring sophisticated engineering and production techniques for applications
in markets in which it has achieved a significant market share.
BUSINESS STRATEGY
The Company's business strategy includes the following principal elements:
- Focus on High-Margin, Specialty Applications. The Company operates
primarily in markets that require sophisticated engineering and
production techniques. In developing new applications, as well as in
evaluating acquisitions, the Company seeks to compete in markets
requiring such engineering expertise and technical capability, rather
than in markets in which the primary competitive factor is price. The
Company believes margins for its products in these markets are higher
than in other manufacturing markets that use standardized products. The
Company's gross margins in 2000 and 1999 were 27.2% and 26.0%,
respectively.
- New Product Introduction. A key part of the Company's strategy is the
introduction of new products, which incorporate improved performance
characteristics or reduced costs in response to customer needs. Because
friction products are the consumable, or wear, component of brake, clutch
and transmission systems, the introduction of new friction products in
conjunction with a new system provides the Company with the opportunity
to supply the aftermarket for the life of the system. For example, the
ability to service the aftermarket for a particular aircraft braking
system will likely provide the Company with a stable market for its
friction products for the life of the product, which can be 30 years or
more. The Company also seeks to grow by applying its existing products
and technologies to new specialized applications where its products have
a performance or technological advantage. In addition, the Company has
expanded its product line offerings through outsourcing opportunities,
especially in the motor segment, to enhance its growth strategy.
- Pursuit of Strategic Acquisitions. Many of the markets in which the
Company competes are fragmented, providing the Company with attractive
acquisition opportunities. The Company made two acquisitions in 2000. Tex
Racing, acquired in November 2000, continues the Company's expansion into
the performance automotive market, and its investment in Net Shape in
December 2000, enabled the Company to expand into metal injection molding
(MIM) technology for its powder metal businesses. The Company will
continue to seek to acquire complementary businesses with leading market
positions that will enable it to expand its product offerings, technical
capabilities and customer base.
<PAGE> 3
- Expanding International Sales. Through its friction segment, which has,
foreign manufacturing facilities in Italy and Canada and a worldwide
distribution network, the Company continues to expand its international
operations in established markets throughout Europe, Asia and North
America. In 2000, the Company opened a friction manufacturing facility
located in Suzhou, China. This facility, which is projected to begin
production in early 2001, will primarily service aftermarket friction
customers on a worldwide basis. The Company also believes that further
opportunities to expand sales exist in emerging economies. In 1999, the
Company established a rotor manufacturing facility in Monterrey, Mexico
to supply customers in its motor segment. This facility will service
motor manufacturers located in Mexico and Latin America. This facility
began production in 2000. Sales from the Company's international
facilities have grown from $8.1 million in 1995 to $21.7 million in 2000.
- Leveraging Customer Relationships. The Company's engineers work closely
with customers to develop and design new products and improve the
performance of existing products. The Company's commitment to quality,
service and just-in-time delivery enables it to build and maintain strong
and stable customer relationships. The Company believes that more than
80% of its sales are from products and materials for which it is the sole
source provider for specific customer applications. The Company or its
predecessors have had relationships with a number of its customers,
dating back to the 1940's. The Company believes that strong relationships
with its customers provide it with significant competitive advantages in
obtaining and securing new business opportunities.
ACQUISITIONS
On November 1, 2000 the Company purchased the stock of Tex Racing
Enterprises, Inc., a manufacturer of premium branded drive train components for
motorsport and performance automotive markets. The products are used by leading
teams in the NASCAR racing series, as well as for high-performance street
vehicles and other road race and oval track competition cars.
On December 1, 2000 the Company made an investment in Net Shape
Technologies LLC a manufacturer of metal injection molded components through its
newly established Hawk MIM, Inc. subsidiary. MIM is an advanced production
process for efficiently producing complex powder metal components from a wide
variety of metallic and ceramic composites. Similar to plastic injection
molding, MIM offers rapid production of three-dimensional engineered components.
MIM technology is complementary to Hawk's existing powder metal businesses.
The friction products, powder metal component and performance automotive
industries are fragmented and are undergoing consolidation due in part to the
additional resources needed (1) to perform the research and development
necessary to satisfy customers' increasingly stringent quality and performance
criteria, and (2) to meet just-in-time delivery requirements. As a result, the
Company believes that it can continue to make strategic acquisitions that may
include other friction product, powder metal component and performance
automotive manufacturers. To effect its acquisition strategy, the Company
engages in discussions, from time to time, with other manufacturers in friction
products, powder metal component, performance automotive, motor and other
complementary businesses. At this time, the Company has no binding agreements
regarding any future acquisitions.
PRODUCTS AND MARKETS
The Company focuses on supplying components to the aerospace, industrial,
performance automotive and motor markets that require sophisticated engineering
and production techniques for applications in markets in which it has achieved a
significant market share. Through acquisitions and product line expansions, the
Company has diversified its end markets. The Company believes this
diversification has reduced its economic exposure to the cyclical effects of any
particular industry.
FRICTION PRODUCTS
The Company's friction segment manufactures products made from proprietary
formulations of composite materials that primarily consist of metal powders,
synthetic and natural fibers. Friction products are the
2
<PAGE> 4
replacement elements used in brakes, clutches and transmissions to absorb
vehicular energy and dissipate it through heat and normal mechanical wear. For
example, the friction brake components in aircraft braking systems slow and stop
airplanes when landing or taxiing. Friction products manufactured by the Company
also include friction components for use in automatic and power shift
transmissions, clutch facings that serve as the main contact point between an
engine and a transmission, and brake components for use in many other types of
braking systems.
The Company's friction products are custom-designed to meet the performance
requirements of a specific application and must meet temperature, pressure,
component life and noise level criteria. The engineering required in designing a
friction material for a specific application dictates a balance between the
component life cycle and the performance application of the friction material
in, for example, stopping or starting movement. Friction products are consumed
through customary use in a brake, clutch or transmission system and require
regular replacement. Because the friction material is the consumable, or wear,
component of such systems, new friction product introduction in conjunction with
a new system provides the Company with the opportunity to supply the aftermarket
with that friction product for the life of the system.
The principal markets served by the Company's friction segment include
manufacturers of aircraft brakes, truck clutches, heavy-duty construction and
agricultural vehicle brakes, clutches and transmissions, and manufacturers of
motorcycle and snowmobiles. Based upon net sales, the Company believes that it
is among the top three worldwide manufacturers of friction products used in
aerospace and industrial applications. The Company estimates that aftermarket
sales of friction products have comprised approximately 50% of the Company's net
friction product sales in recent years. The Company believes that its stable
aftermarket sales component enables the Company to reduce its exposure to
adverse economic cycles.
Aerospace. The Company believes it is the only independent supplier of
friction materials to the manufacturers of braking systems for the Boeing 727,
737 and 757, the MD DC-9, DC-10 and MD-80 and the Canadair CRJ aircraft. The
Company believes it is also the largest supplier of friction materials to the
general aviation (non-commercial, non-military) market, supplying friction
materials for aircraft manufacturers such as Cessna, Lear, Gulfstream and
Fokker. Each aircraft braking system, including the friction materials supplied
by the Company, must meet stringent Federal Aviation Administration criteria and
certification requirements. New model development and FAA testing for the
Company's aircraft braking system customers generally begins two to five years
prior to full scale production of new braking systems. If the Company and its
aircraft brake system manufacturing partner are successful in obtaining the
rights to supply a particular model of aircraft, the Company will typically
supply its friction products to that model's aircraft braking system for as long
as the model continues to fly because it is generally too expensive to redesign
a braking system and meet FAA requirements. Moreover, FAA maintenance
requirements mandate that brake components be changed after a specified number
of take-offs and landings, which the Company expects to result in a continued
and steady market for its aerospace friction products.
The Company's friction products for commercial aerospace applications are
primarily used on "single-aisle" aircraft that are flown on shorter routes,
resulting in more takeoffs and landings than larger aircraft. The Company
believes its friction products provide an attractive combination of performance
and cost effectiveness in these applications. According to Boeing's 2000 Current
Market Outlook, approximately 67 percent of the 13,670 airplanes in the world
fleet are single-aisle commercial aircraft. The report also forecasts
single-aisle to increase by approximately 8,950 to 18,100 by the end of 2019.
The Boeing report also states that world airline passenger traffic is projected
to increase 4.8% per year over the next nineteen years. The report also projects
that world airline cargo traffic will increase 6.4% during the same period. The
Company expects that continued growth in world airline traffic, combined with
the increasing number of single-aisle aircraft, will cause demand for the
Company's aerospace friction products to remain strong.
Construction/Agriculture/Trucks/Specialty. The Company supplies a variety
of friction products for use in brakes, clutches and transmissions on
construction and agriculture equipment, trucks and specialty vehicles. These
components are designed to precise tolerances and permit brakes to stop or slow
a moving vehicle and the clutch or transmission systems to engage or disengage.
The Company believes it is a leading supplier to original equipment
manufacturers and to the aftermarket. The Company believes that its trademark,
Velvetouch(R), is well
3
<PAGE> 5
known in the aftermarket for these components. As with the Company's aerospace
friction products, new friction product introduction in conjunction with a new
brake, clutch or transmission system provides the Company with the opportunity
to supply the aftermarket with the friction product for the life of the system.
- Construction Equipment. The Company supplies friction products such as
transmission discs, clutch facings and brake components to manufacturers
of construction equipment, including Caterpillar. The Company believes it
is the second largest domestic supplier of these types of friction
products. Replacement components for construction equipment are sold
through manufacturers such as Caterpillar, as well as various aftermarket
distributors.
- Agriculture Equipment. The Company supplies friction products such as
clutch facings, transmission discs and brake components to manufacturers
of agriculture equipment, including John Deere and Case New Holland. The
Company believes it is the second largest domestic supplier of such
friction products. Replacement components for agricultural equipment are
sold through original equipment manufacturers as well as various
aftermarket distributors.
- Medium and Heavy Trucks. The Company supplies friction products for
clutch facings used in medium and heavy trucks to original equipment
manufacturers, such as Eaton. The Company believes it is the leading
domestic supplier of replacement friction products used in these
applications. Replacement components are sold through the Company's
original equipment manufacturers and various aftermarket distributors.
- Specialty Friction. The Company supplies friction products for use in
other specialty applications, such as brake pads for Harley-Davidson
motorcycles, AM General Humvees and Bombardier, Polaris Industries and
Arctic Cat snowmobiles. The Company believes that these markets are
experiencing significant growth and the Company will continue to increase
its market share with its combination of superior quality and longer
product life.
POWDER METAL COMPONENTS
The Company's Powder metal segment is a leading supplier of powder metal
components consisting primarily of pump, motor and transmission elements, gears,
pistons and anti-lock brake sensor rings for applications ranging from lawn and
garden tractors to industrial equipment. Since Hawk's founding in 1989, it has
participated in the growing powder metal products industry with a focus on the
North American industrial market, which the Metal Powder Industries Federation,
an industry trade group, estimates has sales of over $5.0 billion. According to
the Federation's latest available data, the value of iron powder shipments in
North America increased by over 5% in 1999 compared to 1998, to an industry
record of 551,000 tons.
Applications. The Company manufactures a variety of components made from
powder metals for use in (1) fluid power applications, such as pumps and other
hydraulic mechanisms, (2) transmissions, other drive mechanisms and anti-lock
braking systems used in trucks and off-road and lawn and garden equipment, (3)
gears and other components for use in home appliances and office equipment and
(4) components used in automotive applications. The Company believes that the
market for powder metal components will continue to grow as the Company's core
powder metal technology benefits from advances that permit production of powder
metal components with increased design flexibility, greater densities and closer
tolerances that provide improved strength, hardness and durability for demanding
applications, and enable the Company's powder metal components to be substituted
for wrought steel or iron components produced with forging, casting or stamping
technologies. Powder metal components can often be produced at a lower cost per
unit than products manufactured with forging, casting or stamping technologies
due to the elimination of, or substantial reduction in, secondary machining,
lower material costs and the virtual elimination of raw material waste. The
Company believes that the current trend of substituting powder metal components
for forged, cast or stamped components in industrial applications will continue
for the foreseeable future, providing the Company with increased product and
market opportunities.
4
<PAGE> 6
The Company's Powder metal segment operates in six facilities, each
targeting an important aspect of the market place:
- High Precision. Helsel's pressing and finishing capabilities enable it to
specialize in tight tolerance fluid power components such as pump
elements and gears. In addition, the Company believes that Helsel's
machining capabilities provide it with a competitive advantage by giving
it the ability to supply a completed part to its customers, typically
without any subcontracted precision machining. The Company believes that
Helsel's growth will be driven by existing customers' new design
requirements and new product applications primarily for pumps, motors and
transmissions.
- Large Size Capability. The Powder metal segment operation, at the
Company's Friction Products Co. facility, has the capability to make
structural powder metal components that are among the largest used in
North America. The Company expects its sales of larger powder metal
components to continue to grow as the Company creates new designs for
existing customers and benefits from market growth, primarily in current
construction, agricultural and truck applications.
- High Volume. Sinterloy, Clearfield and Allegheny target smaller, high
volume parts where they can utilize their efficient pressing and
sintering capabilities to their best advantage. Sinterloy's primary
market has been powder metal components for the business equipment
market. Clearfield's market focus has been primarily to the lawn and
garden, home appliance, power hand tool, and truck markets. Allegheny's
market focus has been primarily the lawn and garden and automotive
markets. The Company believes that the high volume capabilities of
Sinterloy, Clearfield and Allegheny will provide the Company with cross-
selling opportunities from the Company's other powder metal facilities.
- Metal Injection Molding. Net Shape manufactures small complex metal
injection molded parts for a variety of industries. The Company believes
that through its relationship with traditional powder metal end-users,
that significant cross-selling opportunities exist for metal injected
molded parts.
PERFORMANCE AUTOMOTIVE
Under the "Hawk Performance" trade name, the Company supplies high
performance friction material for use in racing car brakes. The Company's high
performance brake pad for racecars can operate in temperatures of over 1,100
degrees Fahrenheit. The Company believes that this performance racing material
may have additional applications such as braking systems for passenger and
school buses, police cars and commercial delivery vehicles. Additionally, the
Company supplies premium branded clutch and drive train components through its
Quarter Master and Tex Racing subsidiaries. The products are used by leading
teams in the NASCAR racing series, as well as for high-performance street
vehicles, and other road race and oval track competition cars.
MOTOR COMPONENTS
The Company believes that its motor segment, which operates through its
Hutchinson Products LLC and Hutchinson Products de Mexico subsidiaries, is the
largest independent U.S. manufacturer of die-cast aluminum rotors for use in
subfractional electric motors. These motors are used in a wide variety of
applications such as business equipment, small household appliances and exhaust
fans. The Company estimates that approximately 50% of all rotors in the
subfractional motor market are made internally by large motor manufacturers.
However, the Company believes its Motor division has growth opportunities
arising from the trend by original equipment motor manufacturers to outsource
their production of rotors. In 1999, the Company expanded its rotor
manufacturing capabilities into Mexico, where a large portion of subfractional
motors are manufactured. Production at this facility began in late 2000.
5
<PAGE> 7
BUSINESS SEGMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues
Friction Products........................................ $106,337 $107,348 $117,091
Powder Metal............................................. 78,203 68,335 53,493
Performance Automotive................................... 9,358 3,324 2,528
Motor.................................................... 8,431 8,631 9,175
-------- -------- --------
Consolidated............................................... $202,329 $187,638 $182,287
======== ======== ========
Operating Income
Friction Products........................................ $ 10,618 $ 7,756 $ 18,955
Powder Metal............................................. 9,755 11,003 13,359
Performance Automotive................................... 356 155 (348)
Motor.................................................... (1,266) (350) 852
-------- -------- --------
Consolidated............................................... $ 19,463 $ 18,564 $ 32,818
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
2000 1999
-------- --------
<S> <C> <C>
Total Assets
Friction Products......................................... $105,844 $113,485
Powder Metal.............................................. 77,001 73,415
Performance Automotive.................................... 17,226 9,180
Motor..................................................... 15,314 13,540
-------- --------
Consolidated................................................ $215,385 $209,620
======== ========
</TABLE>
MANUFACTURING
The manufacturing processes for most of the Company's friction products,
performance automotive brake products and powder metal components are
essentially similar. In general, both use composite metal alloys in powder form
to make high quality powder metal components. The basic manufacturing steps,
consisting of blending/compounding, molding/compacting, sintering (or bonding)
and secondary machining/treatment, are as follows:
- Blending/compounding: Composite metal alloys in powder form are blended
with lubricants and other additives according to scientific formulas,
many of which are proprietary to the Company. The formulas are designed
to produce precise performance characteristics necessary for a customer's
particular application. The Company often works together with its
customers to develop new formulas that will produce materials with
greater energy absorption characteristics, durability and strength.
- Molding/compacting: At room temperature, a specific amount of a powder
alloy is compacted under pressure into a desired shape. The Company's
molding presses are capable of producing pressures of up to 3,000 tons.
The Company believes that it has some of the largest presses in the
powder metal industry, enabling it to produce large, complex components.
With its injection molding equipment, the Company can create complex
shapes not obtainable with conventional powder metal presses.
- Sintering: After compacting, molded parts are heated in furnaces to
specific temperatures, enabling metal powders to metallurgically bond,
harden and strengthen the molded parts while retaining their desired
shape. For friction materials, the friction composite part is also bonded
directly to a steel plate or core, creating a strong continuous metallic
part.
- Secondary machining/treatment: If required by customer specifications, a
sintered part undergoes additional processing. These processing
operations are generally necessary to attain increased hardness or
6
<PAGE> 8
strength, tighter dimensional tolerances or corrosion resistance. To
achieve these specifications, parts are heat-treated, precision coined,
ground, drilled or treated with a corrosion resistant coating, such as
oil.
Certain of the Company's friction products, which are primarily used in
oil-cooled brakes and power shift transmissions, do not require all of the
foregoing steps. For example, molded composite friction materials are molded
under high temperatures and cured in electronically-controlled ovens and then
bonded to a steel plate or core with a resin-based polymer. Cellulose composite
friction materials are blended and formed into continuous sheets and then
stamped into precise shapes by computer-controlled die cutting machines. Like
molded composite friction materials, cellulose composite friction materials are
then bonded to a steel plate or core with a resin-based polymer.
The Company's die-cast aluminum rotors are produced in a three-step
process. Steel stamped disks forming the laminations of the rotors are first
skewed (stacked) and then loaded into dies into which molten aluminum is
injected to create the rotors. The rotor castings created in the dies are then
machined to produce finished rotors. These rotors are manufactured in a variety
of sizes and shapes to customers' design specifications.
- Quality Control. Throughout its design and manufacturing process, the
Company focuses on quality control. For product design, each Company
manufacturing facility uses state-of-the-art testing equipment to
replicate virtually any application required by the Company's customers.
This equipment is essential to the Company's ability to manufacture
components that meet stringent customer specifications. To ensure that
tight tolerances have been met and that the requisite quality is inherent
in its finished products, the Company uses statistical process controls,
a variety of electronic measuring equipment and computer-controlled
testing machinery. The Company has also established programs within each
of its facilities to detect and prevent potential quality problems.
TECHNOLOGY
The Company believes that it is an industry leader in the development of
systems, processes and technologies which enable it to manufacture friction
products with numerous performance advantages, such as greater wear resistance,
increased stopping power, lower noise and smoother engagement. The Company's
expertise is evidenced by its aircraft brake components, which are currently
being installed on many of the braking systems of the Boeing 737-NG (new
generation) series of aircraft as well as new series of industrial equipment
from various original equipment manufactures.
The Company maintains an extensive library of proprietary friction product
formulas that serve as starting points for new product development. Each formula
has a specific set of ingredients and processes to generate repeatability in
production. Some formulas may have as many as 15 different components. A slight
change in a mixture can produce significantly different performance
characteristics. The Company uses a variety of technologies and materials in
developing and producing its products, such as graphitic and cellulose
composites. The Company believes its expertise in the development and production
of products using these different technologies and materials gives it a
competitive advantage over other friction product manufacturers, which typically
have expertise in only one or two types of friction material.
The Company also believes that its powder metal components business is able
to produce a wide range of products from small precise components to large
structural parts. The Company has presses that produce some of the largest
powder metal parts in the world, and its powder metal technology permits the
manufacture of complex components with specific performance characteristics and
close dimensional tolerances that would be impractical to produce using
conventional metalworking processes. With its MIM technology, the Company is
able to create complex shapes previously not available using conventional powder
metal technology
The Company's motor business is able to produce a wide range of rotors for
the fractional and sub-fractional motor industries. The Company has developed
customized manufacturing processes for rotors and created specialty rotor die
construction techniques. In addition, the Company has also designed the highly
automated machines necessary for the production of its rotors.
7
<PAGE> 9
CUSTOMERS
The Company's engineers work closely with customers to develop and design
new products and improve the performance of existing products. The Company's
working relationship with its customers on development and design, and the
Company's commitment to quality, service and just-in-time delivery have enabled
it to build and maintain strong and stable customer relationships. The Company
or its predecessors has had relationships with many of its customers which date
back to the 1940's, and the Company believes that more than 80% of its sales are
from products and materials for which it is the sole source provider for
specific customer applications. Management believes the Company's relationships
with its customers are good.
The Company's recent acquisitions have broadened product lines, increased
its technological capabilities and will further enhance its customer
relationships and expand its preferred supplier status. As a result of the
Company's commitment to customer service and satisfaction, the Company is a
preferred supplier to many of the world's leading original equipment
manufacturers, including Aircraft Braking Systems, BFGoodrich Aerospace,
Caterpillar, Eaton, Case New Holland (CNH), Hydro-Gear, Sauer-Sundstrand,
Electrolux and AO Smith.
The Company's top five customers accounted for 24.8% of the Company's
consolidated net sales in 2000 and 28.5% of the Company's consolidated net sales
in 1999.
MARKETING AND SALES
The Company markets its products globally through product management and
sales professionals, who operate primarily from the Company's facilities in the
United States, Italy, China and Canada. The Company's product managers and sales
force work directly with the Company's engineers who provide the technical
expertise necessary for the development and design of new products and for the
improvement of the performance of existing products. The Company's friction
products are sold both directly to original equipment manufacturers and to the
aftermarket through its original equipment customers and a network of
distributors and representatives throughout the world. The Company also sells
its powder metal components and rotors to original equipment manufacturers
through independent sales representatives.
COMPETITION
The principal segments in which the Company competes are competitive and
fragmented, with many small manufacturers and only a few manufacturers that
generate sales in excess of $50 million. The larger competitors may have
financial and other resources substantially greater than those of the Company.
The Company competes for new business principally at the beginning of the
development of new applications and at the redesign of existing applications by
its customers. For example, new model development for the Company's aircraft
braking system customers generally begins two to five years prior to full-scale
production of new braking systems. Product redesign initiatives by customers
typically involve long lead times as well. Although the Company has been
successful in the past in obtaining this new business, there is no assurance
that the Company will continue to obtain such business in the future. The
Company also competes with manufacturers using different technologies, such as
carbon composite ("carbon-carbon") friction materials for aircraft braking
systems. Carbon-carbon braking systems are significantly lighter than the
metallic aircraft braking systems for which the Company supplies friction
materials, but are more expensive. The carbon-carbon brakes are typically used
on wide-body aircraft, such as the Boeing 747 and military aircraft, where the
advantages in reduced weight justify the additional expense.
In addition, as the Company's core powder metal technology improves,
enabling its components to be substituted for wrought steel or iron components,
the Company increasingly competes with companies using forging, casting or
stamping technologies. Powder metal components can often be produced at a lower
cost per unit than products manufactured with forging, casting or stamping
technologies due to the elimination of, or substantial reduction in, secondary
machining, lower material costs and the virtual elimination of raw material
waste. As a result, powder metal components are increasingly being substituted
for metal parts manufactured using more traditional technologies.
8
<PAGE> 10
SUPPLY AND PRICE OF RAW MATERIALS
The principal raw materials used by the Company are copper, steel and iron
powders, aluminum ingot and custom-fabricated cellulose sheet. The Company has
no long-term supply agreements with any of its major suppliers. However, the
Company has generally been able to obtain sufficient supplies of raw materials
for its operations, and changes in prices of such supplies over the past few
years have not had a significant effect on its operations.
GOVERNMENT REGULATION
The Company's sales to manufacturers of aircraft braking systems
represented 13.7% and 15.1% of the Company's consolidated net sales in 2000 and
1999, respectively. Each aircraft braking system, including the friction
products supplied by the Company, must meet stringent FAA criteria and testing
requirements. The Company has been able to meet these requirements in the past
and continuously reviews FAA compliance procedures to help ensure continued and
future compliance.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Manufacturers like the Company are subject to stringent environmental
standards imposed by federal, state, local and foreign environmental laws and
regulations, including those related to air emissions, wastewater discharges,
chemical and hazardous waste management and disposal. Certain of these
environmental laws hold owners or operators of land or businesses liable for
their own and for previous owners' or operators' releases of hazardous or toxic
substances, materials or wastes, pollutants or contaminants. Compliance with
environmental laws also may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements. The Company is also subject to the federal Occupational
Safety and Health Act and similar foreign and state laws. The nature of the
Company's operations, the long history of industrial uses at some of its current
or former facilities, and the operations of predecessor owners or operators of
certain of the businesses expose the Company to risk of liabilities or claims
with respect to environmental and worker health and safety matters. The Company
reviews its procedures and policies for compliance with environmental and health
and safety laws and regulations and believes that it is in substantial
compliance with all such material laws and regulations applicable to its
operations. The costs of compliance with environmental, health and safety
requirements have not been material to the Company.
INTELLECTUAL PROPERTY MATTERS
Hawk(R), Wellman Friction Products(R), Velvetouch(R), Fibertuff(R),
Feramic(R), Velvetouch Feramic(R), Velvetouch Organik(R) and Velvetouch
Metalik(R), Hawk Brake(R) and Hawk Performance(R) are among the federally
registered trademarks of the Company. Velvetouch(R) is the Company's principal
trademark for use in the friction segment aftermarket and is registered in 26
countries.
Although the Company maintains patents related to its business, the Company
does not believe that its competitive position is dependent on patent protection
or that its operations are dependent on any individual patent.
To protect its intellectual property, the Company relies on a combination
of internal procedures, confidentiality agreements, patents, trademarks, trade
secrets law and common law, including the law of unfair competition.
PERSONNEL
At December 31, 2000, the Company had approximately 1,336 domestic
employees and 264 international employees. Approximately 215 employees at the
Company's Brook Park, Ohio plant are covered under a collective bargaining
agreement with the Paper, Allied Industrial, Chemical and Energy Workers
International Union (PACE) which was renegotiated in 2000 and expires in October
2004; approximately 70 employees at the Company's Akron, Ohio facility are
covered under a collective bargaining agreement with the United Automobile
Workers expiring in July 2003; approximately 200 employees at the Company's
Orzinuovi, Italy plant are represented by a national mechanics union under an
agreement that expired in December 2000 and by a local
9
<PAGE> 11
union under an agreement that also expired in December 2000. The Company is
currently operating under a temporary agreements with its unions; and
approximately 60 hourly employees at the Company's Alton, Illinois facility are
covered under a collective bargaining agreement with the International
Association of Machinists and Aerospace Workers expiring in June 2001. The
Company has experienced no strikes and believes its relations with its employees
and their unions to be good.
ITEM 2. PROPERTIES
Hawk's world headquarters is located in Cleveland, Ohio. The company
maintains manufacturing facilities at 16 locations in 5 countries. The Company
is a lessee under operating leases for some of its properties and equipment.
Hawk's principal research facility is located in Solon, Ohio. In addition,
research is also performed in a number of the operating divisions' facilities.
The Company believes that substantially all of its property and equipment is
maintained in good condition, adequately insured and suitable for its present
and intended use.
The Company is party to an expense sharing arrangement under which the
Company shares the expenses of its corporate headquarters located in Cleveland
with a company owned by Ronald E. Weinberg, the Co-Chairman and Co-CEO of the
Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in lawsuits that arise in the ordinary course of
its business. In the Company's opinion, the outcome of these matters will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A common stock has been traded on the New York Stock
Exchange since the Company's initial public offering on May 12, 1998 under the
symbol "HWK." The following table sets forth for the fiscal periods indicated
the high and low prices of the Common Stock as reported on the New York Stock
Exchange.
QUARTERLY STOCK PRICES
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------- -------
<S> <C> <C> <C>
2000
March 31, 2000................................... $ 6.625 $ 4.375
June 30, 2000.................................... $ 7.875 $ 5.125
September 30, 2000............................... $ 8.500 $ 6.813
December 31, 2000................................ $ 6.938 $ 5.000
1999
March 31, 1999................................... $ 8.750 $ 6.500
June 30, 1999.................................... $11.750 $ 7.438
September 30, 1999............................... $ 9.063 $ 5.250
December 31, 1999................................ $ 6.188 $ 3.813
</TABLE>
The closing sale price for the common stock on December 29, 2000, the last
trading day of the year, was $5.438
Shareholders of record as of March 16, 2001 numbered 85. The Company
estimates that an additional 1,000 shareholders own stock held for their
accounts at brokerage firms and financial institutions.
The Company has never declared or paid, and does not intend to declare or
pay, any cash dividends for the foreseeable future and intends to retain
earnings for the future operation and expansion of the Company's business. The
Company's senior note indenture and its credit facility prohibit the payment of
cash dividends on the Class A common stock except upon compliance with certain
conditions.
11
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31, 2000 1999(2) 1998(2) 1997(2) 1996(2)
-------------------------------- ------ ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales....................................... $202.3 $187.6 $182.3 $160.7 $125.2
Cost of Sales................................... 147.4 138.9 124.6 114.8 92.8
------ ------ ------ ------ ------
Gross Profit.................................... 54.9 48.7 57.7 45.9 32.4
Income from Operations.......................... 19.5 18.6 32.8 22.1 9.8
Income (Loss) before Income Taxes and
Extraordinary Charge.......................... 10.2 10.0 21.9 6.6 (1.1)
Income Taxes.................................... 4.4 3.7 9.7 3.7 0.8
Income (Loss) before Extraordinary Charge....... 5.8 6.3 12.2 2.9 (1.9)
Extraordinary Charge (1)........................ -- -- 3.1 -- 1.2
------ ------ ------ ------ ------
Net Income (Loss)............................... $ 5.8 $ 6.3 $ 9.1 $ 2.9 $ (3.1)
Preferred Stock Dividend Requirements........... (0.2) (0.1) (0.3) (0.3) (0.2)
Income (Loss) before Extraordinary Item
Applicable to Common Shareholders............. $ 5.6 $ 6.2 $ 11.9 $ 2.6 $ (2.1)
Net Income (Loss) Applicable to Common
Shareholders.................................. $ 5.6 $ 6.2 $ 8.9 $ 2.6 $ (3.3)
EARNINGS (LOSS) PER SHARE:
Basic:
Earnings (Loss) Before Extraordinary
Charges.................................... $ .66 $ .71 $ 1.59 $ .55 $ (.45)
Extraordinary Charge.......................... -- -- (.41) -- (.26)
------ ------ ------ ------ ------
Basic Earnings (Loss) Per Share................. $ .66 $ .71 $ 1.18 $ .55 $ (.71)
------ ------ ------ ------ ------
Diluted:
Earnings (Loss) Before Extraordinary Charge... $ .66 $ .71 $ 1.51 $ .45 $ (.45)
Extraordinary Charge.......................... -- -- (.39) -- (.26)
------ ------ ------ ------ ------
Diluted Earnings (Loss) Per Share............... $ .66 $ .71 $ 1.12 $ .45 $ (.71)
------ ------ ------ ------ ------
OTHER DATA:
Depreciation and Amortization................... $ 15.0 $ 13.7 $ 11.5 $ 10.5 $ 8.4
Capital Expenditures (Including Capital
Leases........................................ $ 10.5 $ 10.2 $ 15.2 $ 9.6 $ 10.3
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 2000 1999 1998 1997 1996
- ------------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents....................... $ 4.0 $ 4.0 $ 14.3 $ 4.4 $ 25.8
Working Capital................................. 36.5 33.5 39.9 28.8 48.7
Property Plant and Equipment, Net............... 70.4 70.2 64.3 52.5 44.1
Total Assets.................................... 215.4 209.6 203.4 173.1 158.4
Total Long-Term Debt............................ 103.9 105.4 102.5 132.1 129.2
Shareholders' Equity (Deficit).................. 71.7 66.5 64.4 (2.2) 1.2
</TABLE>
- ---------------
(1) Reflects premium paid on partial redemption of Senior Notes and write-off of
deferred financing costs in conjunction with the Company's initial public
offering, net of $2.3 million in income taxes in 1998 and write-off of
deferred financing costs, net of $0.8 million in income taxes in 1996.
(2) In the fourth quarter of 2000, the Company changed its accounting policy to
reflect in its consolidated statement of income all shipping and handling
costs as cost of sales and related shipping revenue in net sales. All prior
periods have been changed to conform to current year presentation.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with the consolidated
financial statements, notes and tables included elsewhere in this report.
Management's discussion and analysis may contain forward-looking statements that
are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties, which
may cause actual results to differ materially from those expressed in the
forward-looking statements.
RESULTS OF OPERATIONS
In 2000, Hawk Corporation experienced a 7.9 percent decrease in net income
over the prior year. This decrease was attributable to weakness in the heavy
truck and agriculture markets served by the Company's friction and powder metal
divisions, increased technical and administrative spending to support the
Company's growth initiatives and the continuing start-up expenditures at the
Company's Mexico and China facilities. In addition, the Company's effective tax
rate increased in 2000 to 43.0 percent from 36.7 percent in 1999 as a result of
higher tax rates at the Company's foreign operations and the absence of various
state tax credits that resulted in the lowering of the effective rate.
The Company is anticipating slight growth for 2001 as growth in the
industrial markets served by the Company is expected to be near 2000 levels. The
Company expects to see continuing softness in the first half of the year with
more favorable market conditions developing during the second half of 2001.
Additionally, the Company expects to benefit from new product introductions and
the achievement of operating production levels at its facilities in Mexico and
China during 2001.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net Sales. Consolidated net sales for 2000 were $202.3 million, an increase
of $14.7 million or 7.8 percent over 1999. The increase in net sales came
primarily from the Company's powder metal and performance automotive segments.
The net sales increase was attributable to the acquisition of Allegheny in March
1999, Quarter Master in November 1999 and Tex Racing in November 2000. Sales in
2000 from these acquisitions represented $9.4 million, or 63.9 percent, of the
total sales increase reported during 2000. Sales in the friction segment were
$106.3 million in 2000, a decrease of 0.9 percent compared to 1999. Sales
increases in the construction and specialty markets served by the friction
segment were offset by declines in the truck, non-performance automotive and
agriculture markets, and to a lesser extent, the aerospace market. In the
Company's powder metal segment, sales increased to $78.2 million, or 14.5
percent, from 1999. The increase was the result of the acquisition of Allegheny
and strength in the fluid power, appliance and lawn and garden markets served by
the Company. This increase was offset by the continued reduction in volumes from
a customer that moved its production offshore.
Gross Profit. Gross profit increased $6.1 million to $54.9 million during
2000, a 12.5 percent increase compared to gross profit of $48.8 million in 1999.
The gross profit margin increased to 27.1 percent in 2000 from 26.0 percent in
the comparable period in 1999. The increase in margins was led by the friction
segment, primarily as a result of product mix benefits and cost reduction
programs initiated in 1999. In the powder metal segment, while the Company
benefited from volume increases from the acquisition of Allegheny, the softness
in the agriculture and heavy truck markets served by this segment, the loss of a
customer and changes in the product-mix caused a reduction in margins achieved
by the Company during 1999. Gross profit margins in the Company's performance
automotive segment remained flat in 2000 when compared to 1999 while the gross
profit margin in the Company's motor segment declined in 2000 primarily as a
result of the startup costs associated with the Company's new Mexican facility.
Selling, Technical and Administrative Expenses. Selling, technical and
administrative ("ST&A") expenses increased $4.9 million, or 18.6 percent, from
$26.4 million during 1999 to $31.3 million in 2000. As a percentage of net
sales, ST&A increased to 15.5 percent of sales in 2000 from 14.1 percent of
sales in 1999. The increase in ST&A expenses as a percent of sales, resulted
primarily from expenditures incurred by the Company's entry into Mexico and
China, personnel costs associated the Company's growth initiatives and increased
depreciation
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<PAGE> 15
expense. The Company spent $3.5 million, or 1.7 percent of its net sales on
product research and development costs compared to $3.2 million in 1999.
Income from Operations. Income from operations increased $0.9 million, or
4.8 percent, from $18.6 million in 1999 to $19.5 million in 2000. Income from
operations as a percentage of net sales decreased to 9.6 percent in 2000 from
9.9 percent in 1999.
Other (Expense) Income. Other expense was $0.5 million in 2000, an increase
of $0.9 million, from income of $0.4 million reported in 1999. The expense
reported in 2000 was primarily the result of foreign currency transaction losses
incurred by the Company at its Italian facility. In addition, the Company
reported income in 1999 as the result of the receipt of a contingent receivable.
Interest Expense. Interest expense decreased $0.4 million, or 4.3 percent,
to $9.0 million in 2000 from $9.4 million in 1999. The decrease is attributable
to lower debt levels during 2000 compared with 1999.
Income Taxes. The provision for income taxes increased $0.7 million to $4.4
million in 2000 from $3.7 million in 1999 primarily because of the increase in
the Company's effective tax rate during 2000 as a result of higher tax rates at
the Company's foreign operations. In 1999, the Company benefited from state
investment and job creation tax credits. An analysis of changes in income taxes
and the effective tax rate of the Company are presented in the accompanying
consolidated financial statements and notes.
Net Income. As a result of the factors noted above, net income was $5.8
million in 2000, a decrease of 7.9 percent, compared to net income of $6.3
million reported in 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. Consolidated sales for 1999 were $187.6 million, an increase of
$5.3 million or 2.9 percent over 1998. The increase in sales came from the
powder metal segment, with 1999 sales levels exceeding 1998 by $14.8 million, or
27.7 percent. The sales increase was attributable to the acquisition of
Clearfield in June 1998 and Allegheny in March 1999. Sales in 1999 from the
Clearfield Powdered Metals, Inc and Allegheny Powder Metallurgy, Inc.
acquisitions represent a $21.3 million increase over 1998 sales contributed by
Clearfield during the six months of 1998 that it was owned by Hawk. This
increase represents 143.9 percent of the total increase in the 1999 powder metal
segment sales. The Company experienced soft demand in the agricultural market
served by the powder metal segment as well as the loss of a powder metal
customer at the Company's Sinterloy facility during 1999 that moved its
production offshore. Sales in the friction segment were $107.3 million in 1999,
a decrease of 8.4 percent compared to 1998. Sales increases in the truck and
specialty markets served by the friction segment were offset by declines in the
agricultural and mining and forestry components of the construction markets, and
to a lesser extent, the aerospace market.
Gross Profit. Gross profit decreased $8.8 million to $48.8 million during
1999, a 15.3 percent decrease compared to gross profit of $57.6 million in 1998.
The gross profit margin decreased to 26.0 percent in 1999 from 31.6 percent in
the comparable period in 1998. The decrease in margins occurred in both the
friction and powder metal segments, primarily as a result of sales weaknesses in
the agricultural and construction markets, and to a lesser extent, the aerospace
market. This softness contributed to reduced sales of higher-margin friction and
powder metal products and under-utilization of manufacturing capacity, primarily
in the friction segment and higher depreciation costs incurred by the Company.
In the powder metal segment, while the Company benefited from volume increases
from the acquisitions of Clearfield and Allegheny, the softness in the
agricultural and construction markets, the loss of the customer and changes in
the product-mix caused a reduction in margins achieved by the Company during
1999.
Selling, Technical and Administrative Expenses. Selling, technical and
administrative ("ST&A") expenses increased $5.1 million, or 23.9 percent, from
$21.3 million during 1998 to $26.4 million in 1999. As a percentage of net
sales, ST&A increased to 14.1 percent of sales in 1999 from 11.7 percent of
sales in 1998. The increase in ST&A expenses as a percent of sales, resulted
primarily from expenditures incurred by the Company's entry into Mexico and
China and personnel costs associated with the restructuring of the Company's
friction segment. The Company spent $3.2 million, or 1.7 percent of its net
sales on product research and development costs compared to $3.0 million in
1998.
14
<PAGE> 16
Income from Operations. Income from operations decreased $14.2 million, or
43.3 percent, from $32.8 million in 1998 to $18.6 million in 1999. Income from
operations as a percentage of net sales decreased to 9.9 percent in 1999 from
18.0 percent in 1998. The decline reflected the impact of the sales weakness,
product mix, facility utilization, personnel costs and start-up costs incurred
for global expansion.
Interest Expense. Interest expense decreased $2.5 million, or 21.0 percent,
to $9.4 million in 1999 from $11.9 million in 1998. The decrease is attributable
to lower debt levels, a result of the repayment of debt from the proceeds of the
Company's IPO in the second quarter of 1998 and, to a lesser extent, lower
interest rates incurred by the Company during 1999 compared with 1998.
Income Taxes. The provision for income taxes decreased $6.0 million to $3.7
million in 1999 from $9.7 million in 1998, primarily because of the decrease in
pre-tax income. The Company also experienced a decline in its effective tax rate
in 1999 to 36.7 percent from 44.8 percent in 1998 due primarily to state
investment and job creation tax credits received by the Company during the year.
An analysis of changes in income taxes and the effective tax rate of the Company
are presented in the accompanying consolidated financial statements and notes.
Extraordinary Charge. In 1998, the Company recorded an extraordinary charge
of $3.1 million (net of $2.3 million of taxes) in prepayment premiums with the
repayment of $35.0 million of the Company's 10 1/4 percent Senior Notes due 2003
(the "Senior Notes") and the write-off of deferred financing costs associated
with the redemption of all of the $30.0 million of the Company's 12 percent
Senior Subordinated Notes (the "Senior Subordinated Notes").
Net Income. As a result of the factors noted above, net income was $6.3
million in 1999, a decrease of 30.8 percent, compared to net income of $9.1
million reported in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The primary financing requirements of the Company are (1) for capital
expenditures for maintenance, replacement and acquisitions of equipment,
expansion of capacity, productivity improvements and product development, (2)
for funding the Company's day-to-day working capital requirements, (3) for
making additional strategic acquisitions of complementary businesses and (4) to
pay interest on, and to repay principal of, indebtedness. These requirements
have been, and will continue to be, financed through a combination of cash flow
from operations and borrowings under the Company's credit facility. As of
December 31, 2000, the Company had cash and cash equivalents of $4.0 million.
In December 1998, the Board of Directors authorized a program to repurchase
up to $5.0 million of the Company's common stock. During 2000, the Company did
not acquire any shares under the program. In 1999, the Company acquired 367,300
shares under the program.
Net cash provided by operating activities was $21.6 million in 2000
compared to $19.7 million in 1999. Cash provided by operations is primarily
attributable to net income and non-cash charges of depreciation and
amortization. Net working capital was $36.5 million at year-end 2000 compared to
$33.5 million at year-end 1999. The increase in working capital at December 31,
2000 is primarily attributable to the acquisition of Tex Racing in November
2000.
Net cash used in investing activities was $16.9 million in 2000 and $25.8
million in 1999. The cash used in investing activities in 2000 consisted
primarily of $6.5 million for the acquisitions of Tex Racing and Net Shape and
$10.5 million for the purchase of property, plant and equipment. In 1999, cash
used in investing activities consisted of $19.4 million attributable to the
acquisitions of Allegheny and Quarter Master and $10.1 million for the purchase
of property, plant and equipment. During 1999, the Company received cash of $3.7
million from the sale of unused office and manufacturing facilities. In order to
achieve long-term growth prospects and enhance product quality, capital spending
in 2001 is anticipated to be approximately $12.1 million.
Net cash used in financing activities was $4.6 million in 2000, primarily
for the payment of long-term debt. In 1999, net cash used in financing
activities was also $4.6 million, primarily from the repurchase of common stock
and the payment of long-term debt.
15
<PAGE> 17
The Company believes that for the next twelve months, cash flow from
operating activities, borrowings under its credit facility and access to capital
markets will be sufficient to satisfy its working capital, capital expenditure
and debt requirements and to finance continued growth through acquisitions.
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
growth of existing markets and its ability to expand into new markets, to
identify and acquire complementary businesses and to attract new sources of
financing, are forward-looking statements that involve risks and uncertainties.
In addition to statements which are forward-looking by reason of context, the
words "believe," "expect," "anticipate," "intend," "designed," "goal,"
"objective," "optimistic," "will" and other similar expressions identify
forward-looking statements. In light of the risks and uncertainties inherent in
all future projections, the inclusion of the forward-looking statements should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. Many factors could cause
the Company's actual results to differ materially and adversely from those in
the forward-looking statements, including the following:
- the effect of the Company's debt service requirements on funds available
for operations and future business opportunities and the Company's
vulnerability to adverse general economic and industry conditions and
competition;
- the ability of the Company to continue to meet the terms of its credit
facilities which contain a number of significant financial covenants and
other restrictions;
- the ability of the Company to utilize all of its manufacturing capacity
in light of softness in some end-markets served by the Company;
- the effect of any future acquisitions by the Company on its indebtedness
and on the funds available for operations and future business
opportunities;
- the effect of competition by manufacturers using new or different
technologies;
- the effect on the Company's international operations of unexpected
changes in regulatory requirements, export restrictions, currency
controls, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political and economic instability,
fluctuations in currency exchange rates, difficulty in accounts
receivable collection and potentially adverse tax consequences;
- the ability of the Company to successfully integrate the Tex Racing, Net
Shape or any other future acquisitions into the Company's existing
businesses;
- the ability of the Company to negotiate new agreements, as they expire,
with its unions representing certain of its employees, on terms favorable
to the Company or without experiencing work stoppages;
- the effect of any interruption in the Company's supply of raw materials
or a substantial increase in the price of any of the raw materials;
- the continuity of business relationships with major customers; and
- the ability of the Company's products to meet stringent Federal Aviation
Administration criteria and testing requirements.
These risks and others that are detailed in this Form 10-K, must be
considered by any investor or potential investor in the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosures. The following discussion about the Company's
market risk disclosures involves forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements.
The Company is exposed to market risk related to changes in interest rates and
foreign currency exchange rates. The Company does not use derivative financial
instruments for speculative or trading purposes.
Interest Rate Sensitivity. Approximately 29.5 percent of the Company's
long-term debt obligations bear interest at a variable rate. To mitigate the
risk associated with interest rate fluctuations, the Company entered into
16
<PAGE> 18
an interest rate swap with a notional amount of $35.0 million. The agreement
expired on December 31, 2000. In mid-January 2001, the Company entered into a
new interest rate swap agreement with a notional amount of $10.0 million. The
notional amount is used to calculate the contractual cash flow to be exchanged
and does not represent exposure to credit loss.
Foreign Currency Exchange Risk. The Company currently does not hedge its
foreign currency exposure and, therefore, has not entered into any forward
foreign exchange contracts to hedge foreign currency transactions. The Company
has operations outside the United States with foreign-currency denominated
assets and liabilities, primarily denominated in Italian lira, Canadian dollars
and Mexican pesos. Because the Company has foreign-currency denominated assets
and liabilities, financial exposure may result, primarily from the timing of
transactions and the movement of exchange rates. The unhedged foreign currency
balance sheet exposures as of December 31, 2000 are not expected to result in a
significant impact on earnings or cash flows.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Hawk Corporation
We have audited the accompanying consolidated balance sheets of Hawk
Corporation and subsidiaries as of December 31, 2000 and 1999 and the related
consolidated statements of income, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Hawk Corporation and subsidiaries at December 31, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
Cleveland, Ohio
February 9, 2001
18
<PAGE> 20
(This page intentionally left blank)
19
<PAGE> 21
HAWK CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,010 $ 3,993
Accounts receivable, less allowance of $372 in 2000 and
$408 in 1999........................................... 29,602 29,745
Inventories:
Raw materials and work-in-process...................... 20,140 17,809
Finished products...................................... 11,724 9,310
-------- --------
31,864 27,119
Deferred income taxes..................................... 1,113 1,747
Other current assets...................................... 2,976 3,599
-------- --------
Total current assets........................................ 69,565 66,203
Property, plant and equipment:
Land and improvements..................................... 1,603 1,504
Buildings and improvements................................ 18,240 16,067
Machinery and equipment................................... 89,330 81,953
Furniture and fixtures.................................... 5,584 4,915
Construction in progress.................................. 3,316 3,710
-------- --------
118,073 108,149
Less accumulated depreciation............................. 47,672 37,964
-------- --------
Total property, plant and equipment......................... 70,401 70,185
Other assets:
Intangible assets......................................... 70,713 69,177
Shareholder notes......................................... 1,010 1,010
Other..................................................... 3,696 3,045
-------- --------
Total other assets.......................................... 75,419 73,232
-------- --------
Total assets................................................ $215,385 $209,620
======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 22
HAWK CORPORATION
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
2000 1999
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 11,579 $ 11,414
Short-term borrowings..................................... -- 872
Accrued compensation...................................... 7,791 6,944
Other accrued expenses.................................... 6,446 6,271
Current portion of long-term debt......................... 7,273 7,160
-------- --------
Total current liabilities................................... 33,089 32,661
Long-term liabilities:
Long-term debt............................................ 96,661 98,244
Deferred income taxes..................................... 11,554 10,559
Other..................................................... 2,092 1,667
-------- --------
Total long-term liabilities................................. 110,307 110,470
Minority interest........................................... 300 --
Shareholders' equity:
Series D preferred stock, $.01 par value; an aggregate
liquidation value of $1,530, plus any unpaid dividends
with 9.8% cumulative dividend (1,530 shares authorized,
issued and outstanding)................................ 1 1
Class A common stock, $.01 par value; 75,000,000 shares
authorized; 9,187,750 issued; and 8,548,520 and
8,540,920 outstanding in 2000 and 1999, respectively... 92 92
Class B common stock, $.01 par value; 10,000,000 shares
authorized; none issued or outstanding................. -- --
Additional paid-in capital................................ 54,631 54,645
Retained earnings......................................... 24,109 18,491
Accumulated other comprehensive loss...................... (2,409) (1,949)
Treasury stock, at cost, 639,230 and 646,830 shares in
2000 and 1999, respectively............................ (4,735) (4,791)
-------- --------
Total shareholders' equity.................................. 71,689 66,489
-------- --------
Total liabilities and shareholders' equity.................. $215,385 $209,620
======== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 23
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $202,329 $187,638 $182,287
Cost of sales.............................................. 147,387 138,879 124,641
-------- -------- --------
Gross profit............................................... 54,942 48,759 57,646
Expenses:
Selling, technical and administrative expenses........... 31,318 26,366 21,296
Amortization of intangibles.............................. 4,161 3,829 3,532
-------- -------- --------
Total expenses............................................. 35,479 30,195 24,828
-------- -------- --------
Income from operations..................................... 19,463 18,564 32,818
Interest expense........................................... (9,016) (9,409) (11,883)
Interest income............................................ 218 431 999
Other (expense) income, net................................ (535) 405 (31)
-------- -------- --------
Income before income taxes and extraordinary charge........ 10,130 9,991 21,903
Income taxes............................................... 4,360 3,662 9,690
-------- -------- --------
Income before extraordinary charge......................... 5,770 6,329 12,213
Extraordinary charge--net of taxes of $2,276............... -- -- 3,079
-------- -------- --------
Net income................................................. $ 5,770 $ 6,329 $ 9,134
======== ======== ========
Earnings per share:
Basic:
Earnings before extraordinary charge.................. $ .66 $ .71 $ 1.59
Extraordinary charge.................................. -- -- (.41)
-------- -------- --------
Basic earnings per share................................. $ .66 $ .71 $ 1.18
======== ======== ========
Diluted:
Earnings before extraordinary charge.................. $ .66 $ .71 $ 1.51
Extraordinary charge.................................. -- -- (.39)
-------- -------- --------
Diluted earnings per share............................... $ .66 $ .71 $ 1.12
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER COMMON
PREFERRED COMMON PAID-IN EARNINGS COMPREHENSIVE STOCK IN
STOCK STOCK CAPITAL (DEFICIT) INCOME (LOSS) TREASURY TOTAL
--------- ------ ---------- --------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998...................... $1 $14 $ 1,964 $(3,120) $(1,030) $(2,171)
Net income................ 9,134 9,134
Other comprehensive
income:
Foreign currency
translation............ 390 390
-------
Total comprehensive
income................. 9,524
Stock split............... 33 (33)
Issuance of common stock
in connection with
initial public
offering, net of
issuance costs......... 35 54,450 54,485
Conversion of detachable
warrants in connection
with initial public
offering............... 10 6,553 6,563
Preferred stock
redemption............. (1,736) (1,736)
Preferred stock
dividend............... (257) (257)
Repurchase of common
stock.................. $(1,993) (1,993)
-- --- ------- ------- ------- ------- -------
Balance at December 31,
1998...................... 1 92 54,645 12,310 (640) (1,993) 64,415
Net income................ 6,329 6,329
Other comprehensive
income:
Foreign currency
translation............ (1,309) (1,309)
-------
Total comprehensive
income................. 5,020
Preferred stock
dividend............... (148) (148)
Repurchase of common
stock.................. (2,798) (2,798)
-- --- ------- ------- ------- ------- -------
Balance at December 31,
1999...................... 1 92 54,645 18,491 (1,949) (4,791) 66,489
Net income................ 5,770 5,770
Other comprehensive
income:
Minimum pension liability
(net of tax)........... (83) (83)
Foreign currency
translation............ (377) (377)
-------
Total comprehensive
income................. 5,310
Preferred stock
dividend............... (152) (152)
Issuance of common stock
from treasury as
compensation........... (14) 56 42
-- --- ------- ------- ------- ------- -------
Balance at December 31,
2000...................... $1 $92 $54,631 $24,109 $(2,409) $(4,735) $71,689
== === ======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 5,770 $ 6,329 $ 9,134
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 14,976 13,673 11,496
Accretion of discount on debt............................. -- -- 238
Deferred income taxes..................................... 1,650 1,440 3,161
Extraordinary charge, net of tax.......................... -- -- 3,079
Loss on fixed assets...................................... 216 518 346
Changes in operating assets and liabilities, net of
acquired assets:
Accounts receivable.................................... 590 (2,690) 2,546
Inventories............................................ (3,622) 121 (1,821)
Other assets........................................... 57 581 (3,636)
Accounts payable....................................... (205) (67) (817)
Other liabilities...................................... 2,132 (159) 210
-------- -------- --------
Net cash provided by operating activities................... 21,564 19,746 23,936
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities........................... -- -- (4,130)
Sale of marketable securities............................... -- -- 4,040
Business acquisitions....................................... (6,510) (19,350) (9,100)
Purchases of property, plant and equipment.................. (10,489) (10,134) (14,084)
Proceeds from sale of assets................................ 69 3,682 --
Payments received on shareholder notes...................... -- -- 665
-------- -------- --------
Net cash used in investing activities....................... (16,930) (25,802) (22,609)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short-term debt................................. (808) -- (805)
Proceeds from long-term debt................................ 30,217 38,022 35,000
Payments on long-term debt.................................. (33,886) (39,701) (71,795)
Deferred financing costs.................................... -- -- (850)
Payments of preferred stock dividends....................... (152) (148) (257)
Net proceeds from issuance of common stock.................. -- -- 52,749
Prepayment premium on early retirement of debt.............. -- -- (3,588)
Repurchase of common stock.................................. -- (2,798) (1,993)
-------- -------- --------
Net cash (used in) provided by financing activities......... (4,629) (4,625) 8,461
Effect of exchange rate changes on cash..................... 12 357 141
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 17 (10,324) 9,929
Cash and cash equivalents at beginning of year.............. 3,993 14,317 4,388
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 4,010 $ 3,993 $ 14,317
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest.................................. $ 9,045 $ 9,403 $ 12,179
======== ======== ========
Cash payments for income taxes.............................. $ 3,685 $ 2,596 $ 6,310
======== ======== ========
Noncash investing and financing activities:
Equipment purchased with capital leases................... $ 24 $ 85 $ 1,149
======== ======== ========
Issuance of common stock from treasury.................... $ 42 $ -- $ --
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 26
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A. BASIS OF PRESENTATION
Hawk Corporation (the "Company") designs, engineers, manufactures and
markets specialized components used in a wide variety of aerospace, industrial
and commercial applications.
The consolidated financial statements of the Company include its wholly
owned subsidiaries. Beginning in December 2000, the financial statements also
include the Company's 67% ownership interest in Net Shape Technologies, LLC. All
significant intercompany accounts and transactions have been eliminated in the
accompanying financial statements. Certain amounts have been reclassified in
1999 and 1998 to conform with the 2000 presentation.
In May 1998, the Company completed an initial public offering (IPO) of
3,500,000 shares of common stock at an offering price to the public of $17.00
per share. See Note F.
In the fourth quarter of 2000, the Company changed its accounting policy to
reflect in its consolidated statement of income all shipping and handling costs
as cost of sales and related shipping revenue in net sales. All prior periods
have been changed to conform to current year presentation.
B. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and include expenditures
for additions and major improvements. Expenditures for repairs and maintenance
are charged to operations as incurred. The Company principally uses either the
straight-line or the unit method of depreciation for financial reporting
purposes based on annual rates sufficient to amortize the cost of the assets
over their estimated useful lives. Buildings and improvements are depreciated
over periods ranging from 15 to 33 years. Machinery and equipment is depreciated
over periods ranging from 4 to 12 years. Furniture and fixtures are depreciated
over periods ranging from 3 to 10 years. Accelerated methods of depreciation are
used for federal income tax purposes.
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over periods
ranging from 5 to 40 years. The ongoing value and remaining useful life of
intangible assets are subject to periodic evaluation, and the Company currently
expects the carrying amounts to be fully recoverable. If events and
circumstances indicate that intangible assets might be impaired, an undiscounted
cash flows methodology would be used to determine whether an impairment loss
should be recognized.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at year-end exchange rates. Revenues and expenses
are translated at weighted average exchange rates. Gains and losses from
25
<PAGE> 27
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions are included in results of operations. Gains and losses resulting
from translation are included in accumulated other comprehensive loss, a
component of shareholders' equity.
REVENUE RECOGNITION
Revenue from the sale of the Company's products is recognized upon shipment
to the customer and when title has transferred. Costs and related expenses to
manufacture the products are recorded as costs of sales when the related revenue
is recognized.
SIGNIFICANT CONCENTRATIONS
The Company provides credit, in the normal course of its business, to
original equipment and aftermarket manufacturers. The Company's customers are
not concentrated in any specific geographic region. The Company performs ongoing
credit evaluations of its customers and maintains allowances for potential
credit losses which, when realized, have been within the range of management's
expectations.
The Company has approximately 200 employees at one of its foreign
operations covered under a national collective bargaining agreement, which
expired in 2000. The Company is currently operating under a temporary agreement
with its union.
PRODUCT RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The Company's
expenditures for product development and engineering were approximately $3,533
in 2000, $3,229 in 1999 and $2,985 in 1998.
INCOME TAXES
The Company uses the liability method in measuring the provision for income
taxes and recognizing deferred tax assets and liabilities in the balance sheet.
The liability method requires that deferred income taxes reflect the tax
consequences of currently enacted rates for differences between the tax and
financial reporting bases of assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents -- The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents approximate fair
value.
Long-Term Debt (including Current Portion) -- The fair values of the
Company's publicly traded debentures, shown in the following table, are based on
quoted market prices. The fair values of the Company's non-traded debt, also
shown in the following table, are estimated using discounted cash flow analysis,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
2000 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Publicly traded debt................................ $65,000 $61,100 $65,000 $61,100
Non-traded debts (including capital leases)......... $38,934 $38,934 $40,404 $40,404
</TABLE>
Interest Rate Swap -- The Company enters into interest rate swaps primarily
to hedge against interest rate risks. These agreements generally involve the
exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. Counterparties to this agreement
are major financial institutions. There were no interest rate swap agreements
outstanding at December 31, 2000.
26
<PAGE> 28
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which requires all derivatives to be
recognized as either assets or liabilities in the balance sheet and measured at
fair value. The adoption of the statement effective January 1, 2001 did not have
a significant effect.
C. BUSINESS ACQUISITIONS
Effective in June 1998, the Company acquired all of the outstanding stock
of Clearfield Powdered Metals, Inc. for $9,100 in cash and other consideration.
The acquisition was accounted for as a purchase. The excess of the purchase
price over the estimated fair value of the net assets acquired in the amount of
$8,300 is being amortized over 30 years and is included in intangible assets.
The results of operations of Clearfield are included in the Company's
consolidated statements of income since the date of acquisition.
Effective in March 1999, the Company acquired all of the outstanding stock
of Allegheny Powder Metallurgy, Inc. for $14,500 in cash and other
consideration. The acquisition was accounted for as a purchase. The excess of
the purchase price over the estimated fair value of the acquired in the amount
of $8,110 is being amortized over 30 years and is included in intangible assets.
The results of operations of Allegheny are included in the Company's
consolidated statements of income since the date of acquisition.
Effective in November 1999, the Company acquired substantially all of the
assets (except cash) and assumed certain liabilities of Quarter Master
Industries, Inc. for $4,850 in cash and other consideration. The purchase price
also includes future contingent payments based on earnings. The acquisition was
accounted for as a purchase. The excess of the purchase price over the estimated
fair value of the assets less the assumed liabilities in the amount of $4,240 is
being amortized over 15 years and is included in intangible assets. The results
of operations of Quarter Master are included in the Company's consolidated
statements of income since the date of acquisition.
Effective in November 2000, the Company acquired all of the outstanding
stock of Tex Racing Enterprises, Inc. for $6,030 in cash and other
consideration. The purchase price also includes future contingent payments based
on earnings. The acquisition was accounted for as a purchase. The excess of
purchase price over the estimated fair value of the net assets acquired in the
amount of $4,700 is being amortized over 15 years and is included in intangible
assets. The results of operations of Tex Racing are included in the Company's
consolidated statements of income since the date of acquisition.
In December 2000, the Company acquired 67% of Net Shape Technologies LLC
(Net Shape) for $480 in cash, concurrent with a capital infusion of $800. The
acquisition was accounted for as a purchase. The excess of the purchase price
over the estimated fair value of net assets acquired in the amount of $742 is
being amortized over 10 years and is included in intangible assets. The results
of operations of Net Shape are included in the Company's consolidated statements
of income since the date of acquisition.
The following unaudited pro forma consolidated results of operations give
effect to the Allegheny, Quarter Master, Tex Racing and Net Shape acquisitions
as though they had occurred on January 1, 1999 and include certain adjustments,
such as additional amortization expense as a result of goodwill.
27
<PAGE> 29
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Net sales................................................... $209,435 $202,855
======== ========
Net income.................................................. $ 5,658 $ 7,796
======== ========
Income per share -- basic................................... $ .64 $ .88
======== ========
Income per share -- diluted................................. $ .64 $ .88
======== ========
</TABLE>
Pro forma net sales and net income are not necessarily indicative of the
net sales and net income that would have occurred had the acquisitions been made
at the beginning of the year or the results that may occur in the future.
D. INTANGIBLE ASSETS
The components of intangible assets and related amortization periods are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
2000 1999
------- -------
<S> <C> <C>
Product certifications (19 to 40 years)..................... $20,820 $20,820
Goodwill (10 to 40 years)................................... 67,380 61,895
Deferred financing costs (5 to 7 years)..................... 4,693 4,693
Proprietary formulations and patents (10 to 15 years)....... 1,858 1,858
Other....................................................... 1,043 831
------- -------
95,794 90,097
Accumulated amortization.................................... (25,081) (20,920)
------- -------
$70,713 $69,177
======= =======
</TABLE>
Product certifications were acquired and valued based on the acquired
company's position as a certified supplier of friction materials to the major
manufacturers of commercial aircraft brakes.
E. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
DECEMBER 31
------------------
2000 1999
------- -------
<S> <C> <C>
Term Loan................................................... $22,500 $27,500
Senior Notes................................................ 65,000 65,000
Revolver.................................................... 8,145 4,951
Other....................................................... 8,289 7,953
------- -------
103,934 105,404
Less current portion........................................ 7,273 7,160
------- -------
$96,661 $98,244
======= =======
</TABLE>
In connection with the IPO in May 1998, the Company retired all of its
outstanding $30,000 Senior Subordinated Notes, and incurred an extraordinary
charge of $427 relating to the write-off of previously capitalized deferred
financing costs. The Senior Subordinated Notes had detachable warrants to the
lender, which terminated upon the closing of the Company's IPO and provided the
lender the option to purchase 1,023,793 shares of the Company's common stock at
a per share price of $.01. The warrant holders exercised the warrants on May 11,
1998 for 1,023,793 shares of the Company's common stock. As a result of the
warrant exercise the
28
<PAGE> 30
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corresponding carrying value of the warrants of $9,300, less the par value of
the common stock issued, including the put options, was reclassified as an
addition to retained earnings.
In November 1996, the Company issued $100,000 in Senior Notes (Senior
Notes) due on December 1, 2003, unless previously redeemed at the Company's
option, in accordance with the terms of the Senior Notes. Interest is payable
semi-annually on June 1 and December 1 of each year commencing June 1, 1997, at
a fixed rate of 10.25%. In March 1997, the Senior Notes were exchanged for notes
registered with the Securities and Exchange Commission. In May 1998, concurrent
with the IPO, the Company retired $35,000 of the then outstanding $100,000
Senior Notes and incurred extraordinary charges of $1,340 and $3,588 relating to
the write-off of previously capitalized deferred financing costs and a
prepayment premium on the early retirement of debt, respectively. The remaining
$65,000 Senior Notes are fully and unconditionally guaranteed on a joint and
several basis by each of the direct and indirect wholly owned domestic
subsidiaries of the Company (Guarantor Subsidiaries). See Note N.
In May 1998, the Company entered into a $35,000 unsecured term loan
facility and a $50,000 unsecured revolving credit facility. The term loan has
quarterly maturities of $1,250, beginning September 30, 1998, with the remaining
principal of $12,500 due on March 31, 2003. The revolving credit facility
matures March 31, 2003. Interest is payable under both facilities, quarterly, at
a variable rate based on a Eurodollar Rate, plus a margin, per annum or, at the
Company's option, a variable rate based on the lending bank's prime rate. The
margin is subject to increase or decrease based on achievement of certain
financial covenants by the Company. At December 31, 2000, the rate on the term
loan facility and the revolving credit facility was 8.7% and 8.5%, respectively.
The term loan and revolving credit facility require the Company to maintain
certain conditions with respect to net worth and interest coverage ratio as
defined in the agreement.
Aggregate principal payments due on long-term debt as of December 31, 2000
are as follows: 2001 -- $7,273; 2002 -- $6,228; 2003 -- $86,534; 2004 -- $1,829;
2005 -- $1,920; and thereafter -- $150.
At December 31, 1999 the Company's short-term borrowings represent advances
under unsecured lines of credit. No amounts were outstanding at December 31,
2000. Unused amounts under these lines total approximately $1,700 at December
31, 2000.
F. SHAREHOLDERS' EQUITY
In connection with the IPO, in 1998, the Company redeemed all 1,375 shares
of its outstanding, $.01 par value, Series A preferred stock, 351 shares of its
outstanding, $.01 par value, Series B preferred stock and 7 shares of its
outstanding, $.01 par value, Series C preferred stock. The remaining 351 and
1,182 issued and outstanding shares of Series B and C preferred stock,
respectively, were converted into 1,530 shares of $.01 par value, Series D
preferred stock. Dividends on the Series D preferred stock are cumulative at a
rate of 9.8%. Each share of Series D preferred stock is (1) entitled to a
liquidation preference equal to $1,000 per share plus any accrued or unpaid
dividends, (2) not entitled to vote, except in certain circumstances, and (3)
redeemable in whole, at the option of the Company, for $1 per share plus all
accrued dividends to the date of redemption. The Company also has 100,000
authorized shares of $.01 par value, Series E preferred stock, of which no
shares are issued or outstanding. Each share of Series E preferred stock is (1)
not redeemable and is entitled to dividends in the amount of 1,000 times the per
share dividend received by the holders of common stock, (2) entitled to 1,000
votes per share, and (3) entitled to a liquidation right of 1,000 times the
aggregate amount distributed per share to the holder of common stock.
On November 13, 1997, the Board of Directors declared a dividend of one
Series E preferred share purchase right (a Right) for each outstanding share of
common stock. The dividend was payable to the shareholders of record as of
January 16, 1998, and with respect to common stock, issued thereafter until the
Distribution Date, as defined in the Rights Agreement, and in certain
circumstances, with respect to common stock issued after the Distribution Date.
Except as set forth in the Rights Agreement, each Right, when it becomes
exercisable, entitles
29
<PAGE> 31
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the registered holder to purchase from the Company one one-thousandth of a share
of Series E preferred stock at a price of $70 per one one-thousandth share of a
Series E preferred stock, subject to adjustment.
G. EMPLOYEE STOCK OPTION PLAN
The Company grants stock options to certain employees under various plans,
to purchase shares of Class A common shares. In May 2000, the shareholders
approved the Hawk Corporation 2000 Long Term Incentive Plan, which allows for
the issuance of up to 700,000 shares of Class A common stock to officers and
other key employees. During 2000, 1999 and 1998, the Company granted stock
options to purchase an aggregate of 328,878, 147,400 and 343,200 shares,
respectively, at exercise prices representing the fair market values of such
shares at the date of grant. The options vest ratably over a five year period.
The following table summarizes the stock option activity for the years
ended December 31, 2000 and 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year........................ 472,600 $13.78 340,200 $16.50 -- $ --
Granted.......................... 328,878 6.11 147,400 7.47 343,200 16.52
Exercised........................ -- -- -- -- -- --
Canceled......................... (35,211) 13.16 (15,000) 13.83 (3,000) 17.00
-------- ------ -------- ------ -------- ------
Options outstanding at end of
year........................... 766,267 $10.51 472,600 $13.78 340,200 $16.50
Exercisable at the end of the
year........................... 159,300 $14.91 65,340 $16.62 -- $ --
Weighted average fair value of
options granted during the
year........................... $ 4.00 $ 4.13 $ 8.92
Shares available for future
grant.......................... 633,733 227,400 359,800
</TABLE>
Exercise prices for options outstanding as of December 31, 2000 ranged from
$4.25 to $18.70. A summary of the options by range of exercise prices is as
follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------- -------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE
EXERCISE PRICE OPTIONS PRICE LIFE (YEARS) OPTIONS PRICE
- -------------------------------- ------- -------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
$4.25 to $6.00.................. 196,647 $ 5.46 9.3 400 $ 4.25
$6.01 to $12.00................. 284,720 $ 7.37 8.8 37,020 $ 7.74
$12.01 to $18.70................ 284,900 $17.13 6.1 121,880 $17.12
</TABLE>
30
<PAGE> 32
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation expense has been reflected in the accompanying
consolidated financial statements related to the stock options issued pursuant
to this plan. If the Company had elected to recognize compensation expense based
on the fair value at the grant dates for awards under this plan consistent with
the method prescribed by SFAS No. 123, net income and net income per share would
have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Net income:
As reported............................................ $5,770 $6,329 $9,134
Pro forma.............................................. $4,975 $5,469 $8,619
Earnings per share (diluted):
As reported............................................ $ .66 $ .71 $ 1.12
Pro forma.............................................. $ .58 $ .63 $ 1.09
</TABLE>
The fair value of the options granted used to compute pro forma net income
and earnings per share disclosures is the estimated present value at grant date
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Dividend yield.......................................... 0% 0% 0%
Expected volatility..................................... 57.8% 48.8% 35.0%
Risk free interest rate................................. 5.25% 6.5% 5.8%
Expected average holding period......................... 7 YEARS 7 years 7 years
</TABLE>
H. EMPLOYEE BENEFITS
The Company has several defined benefit pension plans that cover certain
employees. Benefits payable are based primarily on compensation and years of
service or a fixed annual benefit for each year of service. Certain hourly
employees are also covered under collective bargaining agreements. The Company
funds the plans in amounts sufficient to satisfy the minimum amounts required
under ERISA.
31
<PAGE> 33
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the defined benefit pension plans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
2000 1999
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.............. $ 12,530 $ 13,360
Service cost......................................... 508 613
Interest cost........................................ 1,019 920
Actuarial losses (gains)............................. 1,601 (1,605)
Plan amendments...................................... 220 --
Foreign currency exchange rate charges............... (25) 37
Benefits paid.......................................... (850) (795)
-------- --------
Benefit obligation at end of year...................... $ 15,003 $ 12,530
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year....... $ 20,270 $ 15,930
Actual return on plan assets......................... (398) 4,410
Foreign currency exchange rate charges............... (45) 66
Company contributions................................ 472 659
Benefits paid........................................ (850) (795)
-------- --------
Fair value of plan assets at end of year.................. $ 19,449 $ 20,270
======== ========
Funded status of the plan................................. $ 4,446 $ 7,740
Unrecognized net actuarial gains.......................... (1,882) (5,362)
Unrecognized prior service cost........................... 576 423
-------- --------
Net prepaid benefit cost.................................. $ 3,140 $ 2,801
======== ========
Amounts recognized in the balance sheet consist of the
following:
Prepaid benefit cost.............................. $ 3,140 $ 2,802
Accrued benefit liability......................... (393) (1)
Intangible asset.................................. 253 --
Cumulative other comprehensive loss............... 140 --
-------- --------
Net amount recognized..................................... $ 3,140 $ 2,801
======== ========
</TABLE>
All of the Company's pension plans were overfunded at December 31, 1999.
Amounts applicable to the Company's underfunded pension plans at December 31,
2000 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
2000
------------
<S> <C>
Projected benefit obligation................................ $ 4,303
Accumulated benefit obligation.............................. 4,269
Fair value of plan assets................................... 4,139
Amounts recognized as accrued benefit liabilities........... 393
Amounts recognized as intangible asset...................... 253
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost...................................... $ 508 $ 613 $ 449
Interest cost..................................... 1,019 920 905
Expected return on plan assets.................... (1,455) (1,498) (1,257)
Amortization of prior service cost................ 67 60 51
Recognized net actuarial loss..................... (26) 58 (3)
------- ------- -------
$ 113 $ 153 $ 145
======= ======= =======
</TABLE>
32
<PAGE> 34
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plans' assets are primarily invested in fixed income and equity
securities. In addition, one of the Company's defined benefit plans also
contains investments in the Company's stock. As of December 31, 2000, 60,000
shares of the Company's stock had been purchased at a cost of $717. The market
value as of December 31, 2000 was $326.
The following assumptions were used in accounting for the defined benefit
plans:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Used to compute the projected benefit obligation as of
December 31:
Weighted average discount rate......................... 7.5% 8.0% 7.0%
Annual salary increase................................. 3.0% 3.0% 3.0%
Weighted average expected long-term rate of return on
plan assets for the year ended December 31........... 9.5% 9.5% 9.5%
</TABLE>
The Company also sponsors several defined contribution plans, which provide
voluntary employee contributions and, in certain plans, matching and
discretionary employer contributions. Expenses associated with these plans were
approximately $1,444 in 2000, $1,263 in 1999 and $844 in 1998.
I. LEASE OBLIGATIONS
The Company has capital lease commitments for buildings and equipment.
Future minimum annual rentals are: 2001 -- $764; 2002 -- $478; 2003 -- $193;
2004 -- $180; 2005 -- $126; and thereafter -- $12. Amount representing interest
is $238. Total capital lease obligations are included in other long-term debt.
Amortization of assets recorded under capital leases is included with
depreciation expense.
The Company leases certain office and warehouse facilities and equipment
under operating leases. Rental expense was approximately $1,828 in 2000, $1,127
in 1999 and $939 in 1998. Future minimum lease commitments under these
agreements that have an original or existing term in excess of one year as of
December 31, 2000 are as follows: 2001 -- $1,937; 2002 -- $1,709;
2003 -- $1,321; 2004 -- $1,255; 2005 -- $901; and thereafter -- $939.
J. INCOME TAXES
The provision for income taxes, including the effect of the extraordinary
charge in 1998, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $2,020 $1,771 $3,028
State and local........................................ 171 113 626
Foreign................................................ 527 251 599
------ ------ ------
2,718 2,135 4,253
Deferred:
Federal................................................ 1,468 1,259 2,675
State and local........................................ 119 138 287
Foreign................................................ 55 130 199
------ ------ ------
1,642 1,527 3,161
------ ------ ------
Total income tax provision............................... $4,360 $3,662 $7,414
====== ====== ======
</TABLE>
33
<PAGE> 35
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of the Company's deferred tax
assets and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued vacation.......................................... $ 530 $ 498
Other accruals............................................ 733 1,436
Foreign capital leases.................................... 1,304 1,398
Other..................................................... 987 672
------- -------
Total deferred tax assets................................... 3,554 4,004
Deferred tax liabilities:
Tax over book depreciation and amortization............... 11,186 9,906
Employee benefits......................................... 687 703
Foreign leased property................................... 1,666 1,815
Other..................................................... 456 392
------- -------
Total deferred tax liabilities.............................. 13,995 12,816
------- -------
Net deferred tax liabilities................................ $10,441 $ 8,812
======= =======
</TABLE>
The provision for income taxes, including the tax effect of the
extraordinary charge in 1998, differs from the amounts computed by applying the
federal statutory rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income tax expense at federal statutory rate................ 35.0% 35.0% 35.0%
State and local tax, net of federal tax benefit............. 1.8 1.6 3.6
Nondeductible goodwill amortization......................... 3.9 4.0 1.8
Adjustment to worldwide tax accrual and other, net.......... 2.3 (3.9) 4.4
---- ---- ----
Provision for income taxes.................................. 43.0% 36.7% 44.8%
==== ==== ====
</TABLE>
In 1999, the Company reversed income tax accruals as a result of the
resolution of tax contingencies. Undistributed earnings of the Company's foreign
subsidiaries amounted to approximately $7,000 at December 31, 2000. These
earnings are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been provided. It is not
practical to determine the amount of income tax liability that would result had
such earnings actually been repatriated. Upon distribution of these earnings in
the form of dividends or otherwise, the Company would be subject to both U.S.
income taxes, which may be offset by foreign tax credits, and withholding taxes
payable to various foreign countries.
34
<PAGE> 36
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. EARNINGS PER SHARE
Basic and diluted earnings per share are computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
2000 1999 1998
------ ------ -------
<S> <C> <C> <C>
Income available to common shareholders:
Income before extraordinary charge.................... $5,770 $6,329 $12,213
Less: Preferred stock dividends....................... 152 148 257
------ ------ -------
Income before extraordinary charge attributable to
common shareholders................................... $5,618 $6,181 $11,956
====== ====== =======
Net income.............................................. $5,770 $6,329 $ 9,134
Less: Preferred stock dividends......................... 152 148 257
------ ------ -------
Net income attributable to common shareholders.......... $5,618 $6,181 $ 8,877
====== ====== =======
Weighted average shares: (In Thousands)
Basic:
Basic weighted average shares...................... 8,548 8,657 7,554
====== ====== =======
Diluted:
Basic from above................................... 8,548 8,657 7,554
Effect of warrant conversion....................... -- -- 368
Effect of note conversion and options.............. 21 -- 19
------ ------ -------
Diluted weighted average shares......................... 8,569 8,657 7,941
====== ====== =======
Earnings per share:
Basic:
Earnings before extraordinary charge............... $ .66 $ .71 $ 1.59
Extraordinary charge............................... -- -- (.41)
------ ------ -------
Basic earnings per share.............................. $ .66 $ .71 $ 1.18
====== ====== =======
Diluted:
Earnings before extraordinary charge............... $ .66 $ .71 $ 1.51
Extraordinary charge............................... -- -- (.39)
------ ------ -------
Diluted earnings per share.............................. $ .66 $ .71 $ 1.12
====== ====== =======
</TABLE>
Outstanding stock options were not included in the computation of diluted
earnings per share for 1999, since it would have resulted in an anti-dilutive
effect. The effect of the note conversion was not included in the computation of
earnings per share for 2000 or 1999, since it would have resulted in an
anti-dilutive effect.
L. RELATED PARTIES
In July 1995, certain shareholders of the Company issued interest-bearing
notes to the Company in the amount of $2,000, enabling them to repay certain
indebtedness incurred by them with respect to an acquisition. The notes are due
and payable on July 1, 2002 and bear interest at the prime rate. The balance
outstanding at December 31, 2000 and 1999 is $1,010.
M. BUSINESS SEGMENTS
During 2000, as a result of recent acquisitions, the Company changed its
segment reporting structure to match management's internal reporting of
businesses operations. Significant changes include the segregation of the
performance automotive and motor businesses.
35
<PAGE> 37
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company now operates in four primary business segments: friction
products, powder metal, performance automotive and motors. The Company's
reportable segments are strategic business units that offer different products
and services. They are managed separately based on fundamental differences in
their operations.
The friction products segment engineers, manufactures and markets
specialized components, used in a variety of aerospace, industrial and
commercial applications. The Company, through this segment, is a worldwide
supplier of friction components for brakes, clutches and transmissions.
The powder metal segment engineers, manufactures and markets specialized
components, used primarily in industrial applications. The Company, through this
segment, targets three areas of the powder metal component marketplace: high
precision components that are used in fluid power applications, large structural
powder metal parts used in construction, agricultural and truck applications,
and smaller high-volume parts.
The performance automotive segment engineers, manufacturers and markets
high performance friction material for use in racing car brakes in addition to
premium branded clutch and drive train components. The Company, through this
segment, targets leading teams in the NASCAR racing series, as well as
high-performance street vehicles and other road race and oval track competition
cars.
The motor segment engineers, manufacturers and markets die-cast aluminum
rotors for use in subfractional electric motors. The Company, through this
segment, targets a wide variety of application such as business equipment, small
household appliances and exhaust fans.
The information by segment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues from external customers:
Friction Products................................ $106,337 $107,348 $117,091
Powder Metal..................................... 78,203 68,335 53,493
Performance Automotive........................... 9,358 3,324 2,528
Motor............................................ 8,431 8,631 9,175
-------- -------- --------
Consolidated....................................... $202,329 $187,638 $182,287
======== ======== ========
Depreciation and amortization:
Friction Products................................ $ 8,444 $ 8,075 $ 7,538
Powder Metal..................................... 5,056 4,666 3,160
Performance Automotive........................... 708 281 165
Motor............................................ 768 651 633
-------- -------- --------
Consolidated....................................... $ 14,976 $ 13,673 $ 11,496
======== ======== ========
Operating income (loss):
Friction Products................................ $ 10,618 $ 7,756 $ 18,955
Powder Metal..................................... 9,755 11,003 13,359
Performance Automotive........................... 356 155 (348)
Motor............................................ (1,266) (350) 852
-------- -------- --------
Consolidated....................................... $ 19,463 $ 18,564 $ 32,818
======== ======== ========
</TABLE>
36
<PAGE> 38
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Extraordinary charge:
Friction Products................................ $ -- $ -- $ 1,939
Powder Metal..................................... -- -- 740
Performance Automotive........................... -- -- 88
Motor............................................ -- -- 312
-------- -------- --------
Consolidated....................................... $ -- $ -- $ 3,079
======== ======== ========
Capital expenditures: (including capital leases):
Friction Products................................ $ 3,731 $ 4,734 $ 11,182
Powder Metal..................................... 4,416 3,486 3,705
Performance Automotive........................... 411 423 --
Motor............................................ 1,955 1,576 346
-------- -------- --------
Consolidated....................................... $ 10,513 $ 10,219 $ 15,233
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
2000 1999
-------- --------
<S> <C> <C>
Total assets:
Friction Products......................................... $105,844 $113,485
Powder Metal.............................................. 77,001 73,415
Performance Automotive.................................... 17,226 9,180
Motor..................................................... 15,314 13,540
-------- --------
Consolidated................................................ $215,385 $209,620
======== ========
</TABLE>
Geographic information for the years ended December 31, 2000, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------- ---------------------------------- ----------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $180,632 $21,697 $202,329 $166,429 $21,209 $187,638 $160,247 $22,040 $182,287
Income (loss) from
operations......... 19,499 (36) 19,463 18,131 433 18,564 31,238 1,580 32,818
Net income (loss).... 7,274 (1,504) 5,770 6,916 (587) 6,329 8,761 373 9,134
Total assets......... 194,659 20,726 215,385 187,363 22,257 209,620 179,879 23,567 203,446
</TABLE>
The Company currently has foreign operations in Canada, Italy, Mexico and
China.
N. SUPPLEMENTAL GUARANTOR INFORMATION
As discussed in Note E, each of the Guarantor Subsidiaries has fully and
unconditionally guaranteed, on a joint and several basis, the obligation to pay
principal, premium, if any, and interest with respect to the Senior Notes. The
Guarantor Subsidiaries are direct or indirect wholly owned subsidiaries of the
Company.
The following supplemental consolidating condensed financial statements
present:
Consolidating condensed balance sheets as of December 31, 2000 and
December 31, 1999, consolidating condensed statements of operations for
the years ended December 31, 2000, 1999 and 1998 and consolidating
condensed statements of cash flows for the years ended December 31,
2000, 1999 and 1998.
37
<PAGE> 39
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Hawk Corporation (Parent), combined Guarantor Subsidiaries and combined
Non-Guarantor Subsidiaries (consisting of the Company's subsidiaries in
Canada and Italy, beginning in 1999, Mexico and beginning in 2000,
China) with their investments in subsidiaries accounted for using the
equity method.
Elimination entries necessary to consolidate the Parent and all of its
subsidiaries.
Management does not believe that separate financial statements of the
Guarantor Subsidiaries are material to investors. Therefore, separate financial
statements and other disclosures concerning the Guarantor Subsidiaries are not
presented.
<TABLE>
<CAPTION>
DECEMBER 31, 2000
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 553 $ 1,027 $ 2,430 $ 4,010
Accounts receivable, net....... 22,785 6,817 29,602
Inventories, net............... 25,792 6,072 31,864
Deferred income taxes.......... 1,199 (86) 1,113
Other current assets........... 967 1,363 646 2,976
-------- -------- ------- --------- --------
Total current assets............. 2,719 50,967 15,879 69,565
Investment in subsidiaries....... 794 3,168 $ (3,962)
Inter-company advances, net...... 160,192 5,784 (5,084) (160,892)
Property, plant and equipment.... 26 61,219 9,156 70,401
Intangible assets................ 207 70,506 70,713
Other............................ 1,010 3,931 775 (1,010) 4,706
-------- -------- ------- --------- --------
Total assets..................... $164,948 $195,575 $20,726 $(165,864) $215,385
======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable............... $ 8,313 $ 3,266 $ 11,579
Accrued compensation........... $ 5 6,854 932 7,791
Other accrued expenses......... 633 5,047 766 6,446
Current portion of long-term
debt........................ 5,000 1,901 372 7,273
-------- -------- ------- --------- --------
Total current liabilities........ 5,638 22,115 5,336 33,089
Long-term liabilities:
Long-term debt................. 90,645 5,574 442 96,661
Deferred income taxes.......... 11,128 426 11,554
Other.......................... 937 1,155 2,092
Inter-company advances, net.... 1,197 149,909 10,199 $(161,305)
-------- -------- ------- --------- --------
Total long-term liabilities...... 102,970 156,420 12,222 (161,305) 110,307
-------- -------- ------- --------- --------
Total liabilities................ 108,608 178,535 17,558 (161,305) 143,396
Minority interest................ 300 300
Shareholders' equity............. 56,340 16,740 3,168 (4,559) 71,689
-------- -------- ------- --------- --------
Total liabilities and
shareholders' equity........... $164,948 $195,575 $20,726 $(165,864) $215,385
======== ======== ======= ========= ========
</TABLE>
38
<PAGE> 40
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 1,691 $ 193 $ 2,109 $ 3,993
Accounts receivable, net....... 22,883 6,862 29,745
Inventories, net............... 21,766 5,353 27,119
Deferred income taxes.......... 1,459 288 1,747
Other current assets........... 1,327 1,979 293 3,599
-------- -------- ------- --------- --------
Total current assets............. 4,477 46,821 14,905 66,203
Investment in subsidiaries....... 793 5,065 $ (5,858)
Inter-company advances, net...... 156,992 997 (904) (157,085)
Property, plant and equipment.... 62,590 7,595 70,185
Intangible assets................ 215 68,962 69,177
Other............................ 1,010 3,394 661 (1,010) 4,055
-------- -------- ------- --------- --------
Total assets..................... $163,487 $187,829 $22,257 $(163,953) $209,620
======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable............... $ 8,084 $ 3,330 $ 11,414
Short-term borrowings.......... 872 872
Accrued compensation........... $ 9 6,032 903 6,944
Other accrued expenses......... 1,473 4,388 410 6,271
Current portion of long-term
debt........................ 5,000 1,745 415 7,160
-------- -------- ------- --------- --------
Total current liabilities........ 6,482 20,249 5,930 32,661
Long-term liabilities:
Long-term debt................. 92,451 4,934 859 98,244
Deferred income taxes.......... 9,906 653 10,559
Other.......................... 522 1,145 1,667
Inter-company advances, net.... 1,127 148,363 8,605 $(158,095)
-------- -------- ------- --------- --------
Total long-term liabilities...... 103,484 153,819 11,262 (158,095) 110,470
-------- -------- ------- --------- --------
Total liabilities................ 109,966 174,068 17,192 (158,095) 143,131
Shareholders' equity............. 53,521 13,761 5,065 (5,858) 66,489
-------- -------- ------- --------- --------
Total liabilities and
shareholders' equity........... $163,487 $187,829 $22,257 $(163,953) $209,620
======== ======== ======= ========= ========
</TABLE>
39
<PAGE> 41
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $180,632 $21,697 $202,329
Cost of sales...................... $ 285 129,265 17,837 147,387
------- -------- ------- ------- --------
Gross profit....................... (285) 51,367 3,860 54,942
Expenses:
Selling, technical and
administrative expenses....... (274) 27,696 3,896 31,318
Amortization of intangible
assets........................ 9 4,152 4,161
------- -------- ------- ------- --------
Total expenses..................... (265) 31,848 3,896 35,479
------- -------- ------- ------- --------
Income from operations............. (20) 19,519 (36) 19,463
Interest (income) expense, net..... (3,803) 11,947 654 8,798
Income (loss) from equity
investees........................ 2,898 (1,504) $(1,394)
Other (income) expense............. 394 141 535
------- -------- ------- ------- --------
Income (loss) before income
taxes............................ 6,681 5,674 (831) (1,394) 10,130
Income taxes....................... 911 2,776 673 4,360
------- -------- ------- ------- --------
Net income (loss).................. $ 5,770 $ 2,898 $(1,504) $(1,394) $ 5,770
======= ======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $166,429 $21,209 $187,638
Cost of sales....................... $ (165) 121,163 17,881 138,879
------- -------- ------- ------- --------
Gross profit........................ 165 45,266 3,328 48,759
Expenses:
Selling, technical and
administrative expenses........ (283) 23,754 2,895 26,366
Amortization of intangible
assets......................... 8 3,821 -- 3,829
------- -------- ------- ------- --------
Total expenses...................... (275) 27,575 2,895 30,195
------- -------- ------- ------- --------
Income from operations.............. 440 17,691 433 18,564
Interest (income) expense, net...... (3,782) 12,220 540 8,978
Income (loss) from equity
investees......................... 3,688 (587) $(3,101)
Other (income) expense.............. (4) (500) 99 (405)
------- -------- ------- ------- --------
Income (loss) before income taxes... 7,914 5,384 (206) (3,101) 9,991
Income taxes........................ 1,585 1,696 381 3,662
------- -------- ------- ------- --------
Net income (loss)................... $ 6,329 $ 3,688 $ (587) $(3,101) $ 6,329
======= ======== ======= ======= ========
</TABLE>
40
<PAGE> 42
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $160,247 $22,040 $182,287
Cost of sales....................... 106,500 18,141 124,641
------- -------- ------- -------- --------
Gross profit........................ 53,747 3,899 57,646
Expenses:
Selling, technical and
administrative expenses........ $ (113) 19,090 2,319 21,296
Amortization of intangible
assets......................... 10 3,522 3,532
------- -------- ------- -------- --------
Total expenses...................... (103) 22,612 2,319 24,828
------- -------- ------- -------- --------
Income from operations.............. 103 31,135 1,580 32,818
Interest (income) expense, net...... (2,667) 13,059 492 10,884
Income from equity investees........ 9,643 373 $(10,016)
Other income (expense), net......... (95) (19) 83 (31)
------- -------- ------- -------- --------
Income before income taxes and
extraordinary charge.............. 12,318 18,430 1,171 (10,016) 21,903
Income taxes........................ 1,121 7,771 798 9,690
------- -------- ------- -------- --------
Income before extraordinary
charge............................ 11,197 10,659 373 (10,016) 12,213
Extraordinary charge, net of tax.... 2,063 1,016 3,079
------- -------- ------- -------- --------
Net income.......................... $ 9,134 $ 9,643 $ 373 $(10,016) $ 9,134
======= ======== ======= ======== ========
</TABLE>
41
<PAGE> 43
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities...................... $ 7,330 $9,976 $4,258 $21,564
Cash flows from investing
activities:
Business acquisitions........... (6,510) (6,510)
Purchase of property, plant and
equipment.................... (7,747) (2,742) (10,489)
Proceeds from sale of assets.... 69 69
-------- ------ ------ ------ -------
Net cash used in investing
activities...................... (6,510) (7,678) (2,742) (16,930)
Cash flows from financing
activities:
Payments on short-term debt..... (808) (808)
Proceeds from borrowings of
long-term debt............... 29,443 774 30,217
Payments on long-term debt...... (31,249) (2,238) (399) (33,886)
Payment of preferred stock
dividend..................... (152) (152)
-------- ------ ------ ------ -------
Net cash used in financing
activities...................... (1,958) (1,464) (1,207) (4,629)
Effect of exchange rate changes
on cash...................... 12 12
-------- ------ ------ ------ -------
Net (decrease) increase in cash
and cash equivalents............ (1,138) 834 321 17
Cash and cash equivalents, at
beginning of period............. 1,691 193 2,109 3,993
-------- ------ ------ ------ -------
Cash and cash equivalents, at end
of period....................... $ 553 $1,027 $2,430 $ -- $ 4,010
======== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities........................... $11,158 $4,886 $3,702 $19,746
Cash flows from investing activities:
Business acquisitions................ (19,350) (19,350)
Purchase of property, plant and
equipment......................... (7,953) (2,181) (10,134)
Proceeds from sale of assets......... 3,682 3,682
------- ------ ------ ------ -------
Net cash used in investing
activities........................... (19,350) (4,271) (2,181) (25,802)
Cash flows from financing activities:
Proceeds from borrowings of long-term
debt.............................. 37,897 125 38,022
Payments on long-term debt........... (37,946) (1,147) (608) (39,701)
Payment of preferred stock
dividend.......................... (148) (148)
Repurchase of common stock........... (2,798) (2,798)
------- ------ ------ ------ -------
Net cash used in financing
activities........................... (2,995) (1,022) (608) (4,625)
Effect of exchange rate changes on
cash.............................. 554 (197) 357
------- ------ ------ ------ -------
Net (decrease) increase in cash and
cash equivalents..................... (11,187) 147 716 (10,324)
Cash and cash equivalents, at beginning
of period............................ 12,878 46 1,393 14,317
------- ------ ------ ------ -------
Cash and cash equivalents, at end of
period............................... $ 1,691 $ 193 $2,109 $ -- $ 3,993
======= ====== ====== ====== =======
</TABLE>
42
<PAGE> 44
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities........................... $ 3,873 $16,319 $3,744 $23,936
Cash flows from investing activities:
Purchase of marketable securities.... (4,130) (4,130)
Sale of marketable securities........ 4,040 4,040
Business acquisitions................ (9,100) (9,100)
Purchase of property, plant and
equipment......................... (12,570) (1,514) (14,084)
Payments received on shareholder
notes............................. 665 665
-------- ------- ------ ------ -------
Net cash used in investing
activities........................... (8,525) (12,570) (1,514) (22,609)
Cash flows from financing activities:
Payments on short-term debt.......... (805) (805)
Proceeds from long-term debt......... 35,000 35,000
Payments on long-term debt........... (67,500) (3,379) (916) (71,795)
Deferred financing costs............. (850) (850)
Payment of preferred stock
dividend.......................... (241) (16) (257)
Net proceeds from issuance of common
stock............................. 52,749 52,749
Prepayment premium on early
retirement of debt................ (3,588) (3,588)
Repurchase of common stock........... (1,993) (1,993)
-------- ------- ------ ------ -------
Net cash provided by (used in)
financing activities................. 14,427 (4,245) (1,721) 8,461
Effect of exchange rate changes on
cash................................. 73 68 141
-------- ------- ------ ------ -------
Net increase (decrease) in cash and
cash equivalents..................... 9,775 (423) 577 9,929
Cash and cash equivalents, at beginning
of period............................ 3,103 469 816 4,388
-------- ------- ------ ------ -------
Cash and cash equivalents, at end of
period............................... $ 12,878 $ 46 $1,393 $ -- $14,317
======== ======= ====== ====== =======
</TABLE>
O. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2000 2000 2000 2000 1999 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $55,170 $53,837 $47,861 $45,461 $47,134 $48,164 $45,695 $46,645
Gross profit......... 14,943 14,958 13,362 11,679 13,856 12,533 10,477 11,893
Net income........... 2,164 1,910 1,493 203 2,652 1,789 1,235 653
Basic earnings per
share.............. $ .25 $ .22 $ .17 $ .02 $ .30 $ .20 $ .14 $ .07
Diluted earnings per
share.............. $ .25 $ .22 $ .17 $ .02 $ .30 $ .20 $ .14 $ .07
</TABLE>
In the fourth quarter of 2000, the Company changed its accounting policy to
reflect in its consolidated statement of income all shipping and handling costs
as cost of sales and related shipping revenue in net sales. All prior periods
have been changed to conform to current year presentation.
43
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to
the Registrant's definitive Proxy Statement relating to its 2001 Annual Meeting
of Stockholders (the "Proxy Statement"), under the captions "Board of
Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance." This Proxy Statement will be filed with the SEC prior to
April 28, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained under the caption
"Executive Compensation and Other Information" in the Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is contained under the caption
"Principal Stockholders" in the Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is contained under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the Company are included
in Item 8:
(i) Consolidated Balance Sheets at December 31, 2000 and 1999
(ii) Consolidated Statements of Income for the years ended December
31, 2000, 1999 and 1998
(iii) Consolidated Statements of Shareholders' Equity (Deficit) for
the years ended December 31, 2000, 1999 and 1998
(iv) Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
(v) Notes to Consolidated Financial Statements for the years ended
December 31, 2000, 1999 and 1998
All consolidated financial schedules are omitted because they are
inapplicable, not required by the instructions or the information is
included in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K:
None.
44
<PAGE> 46
(c) Exhibits:
<TABLE>
<S> <C>
3.1 Form of the Company's Second Amended and Restated
Certificate of Incorporation (Incorporated by reference to
the Company's Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission (Reg. No.
333-40535))
3.2 The Company's Amended and Restated By-laws (Incorporated by
reference to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission (Reg. No.
001-13797))
4.1 Form of Rights Agreement between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission (Reg. No. 333-40535))
4.2 Indenture, dated as of November 27, 1996, by and among the
Company, Friction Products Co., Hawk Brake, Inc., Logan
Metal Stampings, Inc., Helsel, Inc., S.K. Wellman Holdings,
Inc., S.K. Wellman Corp., Wellman Friction Products U.K.
Corp., Hutchinson Products Corporation, and Bank One Trust
Company, NA, as Trustee (Incorporated by reference to the
Company's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission (Reg. No. 333-18433))
4.3 Form of 10 1/4% Senior Note due 2003 (Incorporated by
reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission
(Reg. No. 333-18433))
4.4 Form of Series B 10 1/4% Senior Note due 2003 (Incorporated
by reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission
(Reg. No. 333-18433))
4.5 Stockholders' Voting Agreement, effective as of November 27,
1996, by and among the Company, Norman C. Harbert, the
Harbert Family Limited Partnership, Ronald E. Weinberg, the
Weinberg Family Limited Partnership, Byron S. Krantz and the
Krantz Family Limited Partnership (Incorporated by reference
to the Company's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission (Reg. No.
333-18433))
4.6 Letter agreement, dated January 5, 1998, amending the
Stockholders' Voting Agreement, effective as of November 27,
1996, by and among the Company, Norman C. Harbert, the
Harbert Family Limited Partnership, Ronald E. Weinberg, the
Weinberg Family Limited Partnership, Byron S. Krantz and the
Krantz Family Limited Partnership (Incorporated by reference
to the Company's Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission (Reg. No.
333-40535))
10.1 Employment Agreement, dated as of November 1, 1996, between
the Company and Norman C. Harbert (Incorporated by reference
to the Company's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission (Reg. No.
333-18433))
10.2 Form of Amended and Restated Wage Continuation Agreement
between the Company and Norman C. Harbert (Incorporated by
reference to the Company's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission
(Reg. No. 333-40535))
10.3 Employment Agreement, dated as of November 1, 1996, between
the Company and Ronald E. Weinberg (Incorporated by
reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission
(Reg. No. 333-18433))
10.7 Letter agreement, dated as of March 26, 1998, amending the
Employment Agreement and the Consulting Agreement, each
dated July 1, 1994, between Helsel, Inc. and Jess F. Helsel
(Incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1998 as filed with the
Securities and Exchange Commission)
</TABLE>
45
<PAGE> 47
<TABLE>
<S> <C>
10.8 Form of the Promissory Notes, each dated June 30, 1995, issued by of
Norman C. Harbert and Ronald E. Weinberg to the Company (Incorporated
by reference to the Company's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission (Reg. No. 333-18433))
10.9 Letter agreement, dated October 1, 1996, amending the Promissory Notes,
dated June 30, 1995, issued by each of Norman C. Harbert and Ronald E.
Weinberg to the Company (Incorporated by reference to the Company's
Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission (Reg. No. 333-18433))
10.11 Credit Agreement, dated as of May 1, 1998, among the Company and
KeyBank National Association, as Swing Line Lender, Administrative
Agent and as Syndication Agent (Incorporated by reference to the
Company's Form 10-Q for the quarterly period ended June 30, 1998 as
filed with the Securities and Exchange Commission)
10.12 Subsidiary Guaranty, dated as of May 1, 1998, among the subsidiaries
of the Company, as guarantors, and KeyBank National Association,
as Administrative Agent (Incorporated by reference to the Company's
Form 10-Q for the quarterly period ended June 30, 1998 as filed with
the Securities and Exchange Commission)
10.13* Amendment No. 1, dated as of November 22, 2000 to Credit Agreement
among the Company and KeyBank National Association, as Lender, the
Swing Line Lender, a Letter of Credit Issuer and as the Syndication
Agent and the Administrative Agent
10.14 Hawk Corporation 1997 Stock Option Plan (Incorporated by reference
to the Company's Registration Statement on Form S-1 as filed with
the Securities and Exchange Commission (Reg. No. 333-40535))
10.15* Hawk Corporation 2000 Long Term Incentive Plan
10.16* Hawk Corporation Annual Incentive Compensation Plan
21.1* Subsidiaries of the Registrant
23.1* Consent of Ernst & Young LLP
</TABLE>
- ---------------
* Filed herewith
46
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Hawk Corporation
By: /s/ THOMAS A. GILBRIDE
------------------------------------
Thomas A. Gilbride
Vice President -- Finance
Date March 23, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NORMAN C. HARBERT Co-Chairman of the Board, Co-Chief March 23, 2001
- ------------------------------------ Executive Officer and Director (principal
Norman C. Harbert executive officer)
/s/ RONALD E. WEINBERG Co-Chairman of the Board, Co-Chief March 23, 2001
- ------------------------------------ Executive Officer, Treasurer and Director
Ronald E. Weinberg (principal financial officer)
/s/ THOMAS A. GILBRIDE Vice President -- Finance (principal March 23, 2001
- ------------------------------------ accounting officer)
Thomas A. Gilbride
/s/ BYRON S. KRANTZ Secretary and Director March 23, 2001
- ------------------------------------
Byron S. Krantz
/s/ PAUL R. BISHOP Director March 23, 2001
- ------------------------------------
Paul R. Bishop
/s/ DAN T. MOORE, III Director March 23, 2001
- ------------------------------------
Dan T. Moore, III
/s/ WILLIAM J. O'NEILL, JR. Director March 23, 2001
- ------------------------------------
William J. O'Neill, Jr.
/s/ JACK KEMP Director March 23, 2001
- ------------------------------------
Jack Kemp
</TABLE>
47
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>2
<FILENAME>l87006aex10-13.txt
<DESCRIPTION>EXHIBIT 10.13
<TEXT>
<PAGE> 1
Exhibit 10.13
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of November 22, 2000
("THIS AMENDMENT"), among the following: (i) HAWK CORPORATION, a Delaware
corporation (herein, together with its successors and assigns, the "Borrower");
(ii) the Lenders party hereto; and (iii) KEYBANK NATIONAL ASSOCIATION, a
national banking association, as a Lender, the Swing Line Lender, the Letter of
Credit Issuer, and as the Syndication Agent and the Administrative Agent under
the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, the Swing Line Lender, the
Letter of Credit Issuer, the Syndication Agent and the Administrative Agent
entered into the Credit Agreement, dated as of May 1, 1998 (the "Credit
Agreement"; with the terms defined therein, or the definitions of which are
incorporated therein, being used herein as so defined).
(2) The parties hereto desire to change certain of the terms and
provisions of the Credit Agreement, all as more fully set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
1. AMENDMENTS, ETC.
1.1. PRICING GRID. The Pricing Grid Table which appears in section
2.8(h) of the Credit Agreement is amended to read in its entirety as follows:
PRICING GRID TABLE
(Expressed in Basis Points)
<TABLE>
<CAPTION>
Applicable
Ratio of Eurodollar Margin Applicable
Consolidated Net Debt for Applicable Eurodollar Margin
to General Revolving Facility Fee for
Consolidated EBITDA Loans Rate Term Loans
<S> <C> <C> <C>
$ 3.00 to 1.00 175 50 225
$ 2.50 to 1.00 but less than 3.00 to 1.00 160 40 200
$ 2.00 to 1.00 but less than 2.50 to 1.00 140 35 175
less than 2.00 to 1.00 120 30 150
</TABLE>
1.2. EFFECTIVENESS OF PRICING CHANGES. (a) Effective as of the
Effective Date of this Amendment provided for in section 4 hereof, for all
General Revolving Loans and Term Loans then or thereafter outstanding, and until
changed
<PAGE> 2
in accordance with the applicable provisions of section 2.8(h) of the Credit
Agreement based on the consolidated financial statements of the Borrower for a
fiscal quarter ended December 31, 2000 or thereafter, the Applicable Eurodollar
Margin for General Revolving Loans will be 160 basis points per annum and the
Applicable Eurodollar Margin for Term Loans will be 200 basis points per annum.
(b) Effective as of the Effective Date of this Amendment, and until
changed in accordance with the applicable provisions of section 4.1(a) of the
Credit Agreement based on the consolidated financial statements of the Borrower
for a fiscal quarter ended December 31, 2000 or thereafter, the Applicable
Facility Fee Rate will be 40 basis points per annum.
1.3. NEW SECTION 2A. Effective as of the Effective Date of this
Amendment, a new section 2A is hereby added to the Credit Agreement immediately
succeeding section 2 (and Exhibits G-1, G-2, G-3, G-4 H-1 and H-2 referenced in
such section 2A are hereby added as additional Exhibits to the Credit Agreement)
as follows:
SECTION 2A. ALTERNATIVE CURRENCY LOANS.
2A.1 CERTAIN ADDITIONAL DEFINED TERMS. As used in this
Section 2A, the following terms shall have the meanings herein
specified unless the context otherwise requires:
"ALTERNATIVE CURRENCY" means any currency other than
Dollars which is freely transferable and convertible into
Dollars.
"ALTERNATIVE CURRENCY ADVANCE" shall have the meaning
provided in section 2A.2. Each Alternative Currency Advance
shall constitute a "Loan" as defined in and for all purposes
of this Agreement and the other Credit Documents, and the
making of each Alternative Currency Advance shall constitute a
"Credit Event" as defined in and for all purposes of this
Agreement and the other Credit Documents.
"ALTERNATIVE CURRENCY ADVANCE REPORT" shall have the
meaning provided in section 2A.7.
"ALTERNATIVE CURRENCY GUARANTEED OBLIGATIONS" shall
have the meaning provided in section 2A.18.
"ALTERNATIVE CURRENCY LENDER" shall have the meaning
provided in section 2A.11.
"ALTERNATIVE CURRENCY LENDING OFFICE" shall mean,
with respect to any Lender, the office of such Lender
specified as its Alternative Currency Lending Office in the
Alternative Currency Quote delivered by such Lender in
response to any Alternative Currency Quote Request.
"ALTERNATIVE CURRENCY OUTSTANDINGS" shall mean, at
any time an amount equal to the aggregate Dollar Equivalent of
all Alternative Currency Advances outstanding at such time.
"ALTERNATIVE CURRENCY PARTICIPATION AMOUNT" shall
have the meaning provided in section 2A.11.
"ALTERNATIVE CURRENCY QUOTE" shall have the meaning
provided in section 2A.4.
"ALTERNATIVE CURRENCY QUOTE REQUEST" shall have the
meaning provided in section 2A.3.
"APPLICABLE ALTERNATIVE CURRENCY BUSINESS DAY" shall
mean, with respect to any Alternative Currency Advance, a
Business Day on which commercial banks are open for
international business (including the clearing of currency
transfers in the Alternative Currency of such Alternative
Currency Advance) in the principal financial center of the
home country of such Alternative Currency.
2
<PAGE> 3
"DOLLAR EQUIVALENT" shall mean in respect of any Alternative Currency
Advance, the amount of Dollars that would be obtained by converting the
outstanding amount of currency of such Alternative Currency Advance, as
specified in the then most recent Alternative Currency Advance Report in respect
of such Alternative Currency Advance, into Dollars at the spot rate for the
purchase of Dollars with such currency as quoted by KeyBank at approximately
9:00 A.M. (Cleveland, Ohio time) on the second Applicable Alternative Currency
Business Day prior to the date of such Alternative Currency Advance Report.
"ELECTION TO PARTICIPATE" means an Election to Participate
substantially in the form of Exhibit H-1.
"ELECTION TO TERMINATE" means an Election to Terminate substantially in
the form of Exhibit H-2.
"ELIGIBLE SUBSIDIARY" means any wholly-owned Foreign Subsidiary of the
Borrower as to which an Election to Participate shall have been delivered to the
Administrative Agent and as to which an Election to Terminate shall not have
been delivered to the Administrative Agent. Each such Election to Participate
and Election to Terminate shall be duly executed on behalf of such wholly-owned
Foreign Subsidiary and the Borrower in such number of copies as the
Administrative Agent may request. The delivery of an Election to Terminate shall
not affect any obligation of an Eligible Subsidiary theretofore incurred. The
Administrative Agent shall promptly give notice to the Lenders of the receipt of
any Election to Participate or Election to Terminate.
"INTEREST PERIOD" shall mean, with respect to any Alternative Currency
Advance, the Interest Period applicable to such Alternative Currency Advance, as
may be requested by the Borrower or any Eligible Subsidiary, as applicable, and
accepted by a Lender but which shall not, in any event (i) exceed three months
in duration or (ii) end after the General Revolving Loan Maturity Date. Each
Interest Period for any Alternative Currency Advance shall commence on the date
the Alternative Currency Advance is made and shall end on the date specified in
the applicable Alternative Currency Quote Request.
"NOTICE OF ALTERNATIVE CURRENCY REFUNDING" shall have the meaning
provided in section 2A.11.
2A.2 ALTERNATIVE CURRENCY ADVANCES. (a) Alternative Currency Option.
From time to time prior to the General Revolving Loan Maturity Date, the
Borrower or any Eligible Subsidiary may, as set forth in this section 2A,
request the Lenders to make offers to make a loan (each, an "Alternative
Currency Advance") to the Borrower or the Eligible Subsidiary, as applicable.
Any Lender may, but shall have no obligation to, make such offers, and the
Borrower or the Eligible Subsidiaries, as applicable, may, but shall have no
obligation to, accept any such offers in the manner set forth in this section
2A; provided that neither the Borrower nor any Eligible Subsidiary, as
applicable, may accept any offer if, after giving effect to the Alternative
Currency Advance to be made pursuant to such offer and any other outstanding
accepted offers, (i) the aggregate Alternative Currency Outstandings would
exceed $5,000,000 at such time, or (ii) the sum of (A) the aggregate Alternative
Currency Outstandings plus (B) the aggregate principal amount of all General
Revolving Loans then outstanding plus (C) the aggregate amount of all Swing Line
Loans then outstanding plus (D) the aggregate of the Letter of Credit
Outstandings would exceed the Total General Revolving Commitment at such time.
2A.3 ALTERNATIVE CURRENCY QUOTE REQUEST. When the Borrower or the
Eligible Subsidiary, as applicable, wishes to request offers to make Alternative
Currency Advances under this section 2A, it shall transmit to the Administrative
Agent by facsimile transmission a request (an "Alternative Currency Quote
Request") substantially in the form of Exhibit G-1 hereto so as to be
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received no later than 10:00 A.M. (Cleveland, Ohio time) on the fifth Applicable
Alternative Currency Business Day prior to the date of the Alternative Currency
Advance requested therein (or such other time or date as the Administrative
Agent shall have agreed and shall have notified to the Lenders not later than
the date of the Alternative Currency Quote Request for the first Alternative
Currency Advance for which such change is to be effective) specifying:
(a) the proposed date of the Alternative Currency Advance,
which shall be an Applicable Alternative Currency Business Day with respect to
the Alternative Currency in which such Alternative Currency Advance is
requested;
(b) the Alternative Currency in which such Alternative
Currency Advance is requested;
(c) the aggregate principal amount of such Alternative
Currency Advance (in such Alternative Currency); and
(d) the duration of the Interest Period applicable to such
Alternative Currency Advance.
The Borrower or any Eligible Subsidiary may request offers to make Alternative
Currency Advances with more than one Interest Period and in more than one
Alternative Currency in a single Alternative Currency Quote Request. No
Alternative Currency Quote Request by the Borrower or any Eligible Subsidiary
shall be given within five Business Days of any other Alternative Currency Quote
Request. Notwithstanding the foregoing, neither the Borrower nor any Eligible
Subsidiary may request offers to make Alternative Currency Advances when a
Default under section 10.1 or an Event of Default is then in existence.
2A.4 INVITATION FOR ALTERNATIVE CURRENCY QUOTES. Promptly upon receipt
of an Alternative Currency Quote Request, the Agent shall send to the Lenders by
facsimile transmission an Invitation for Alternative Currency Quotes
substantially in the form of Exhibit G-2 hereto, which shall constitute an
invitation by the Borrower or the Eligible Subsidiary to each Lender to submit
quotes (the "Alternative Currency Quotes") offering to make the Alternative
Currency Advances to which such Alternative Currency Quote Request relates in
accordance with this section 2A.
2A.5 SUBMISSION AND CONTENTS OF ALTERNATIVE CURRENCY QUOTES. Each
Lender may submit to the Borrower or the Eligible Subsidiary an Alternative
Currency Quote containing an offer or offers to make Alternative Currency
Advances in response to an Invitation for Alternative Currency Quotes. Each
Alternative Currency Quote shall be in substantially the form of Exhibit G-3
hereto and must be submitted to the Borrower or the Eligible Subsidiary, as
applicable, by facsimile transmission at its offices specified in or pursuant to
section 12.3 not later than 2:00 P.M. (Cleveland, Ohio time) on the fourth
Applicable Alternative Currency Business Day prior to the proposed date of the
Alternative Currency Advance (or such other time or date as the Administrative
Agent shall have agreed and shall have notified to the Lenders not later than
the date of the Alternative Currency Quote Request for the first Alternative
Currency Advance for which such change is to be effective).
2A.6 ACCEPTANCE AND NOTICE. Not later than 10:00 A.M. (Cleveland, Ohio
time) on the third Applicable Alternative Currency Business Day prior to the
proposed date of any Alternative Currency Advance (or such other time or date as
the Administrative Agent shall have agreed and shall have notified to the
Lenders not later than the date of the Alternative Currency Quote Request for
the first Alternative Currency Advance for which such change is to be
effective), the Borrower or the applicable Eligible Subsidiary shall notify the
Administrative Agent and each of the Lenders which submitted an Alternative
Currency Quote of its acceptance or non-acceptance of the offers so notified to
it pursuant to section 2A.5. In the case of acceptance, such notice shall
specify the aggregate principal amount of offers for each Interest Period and
each Alternative Currency that are accepted.
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The Borrower or the Eligible Subsidiary, as applicable, may accept any
Alternative Currency Quote in whole or in part; provided that:
(i) the aggregate principal amount of each may not exceed the
applicable amount set forth in the related Alternative Currency Quote Request,
and
(ii) the Borrower or the Eligible Subsidiary, as applicable,
may not accept any offer that would cause it to violate the proviso to section
2A.2 above.
Each Lender whose Alternative Currency Quote has been accepted in whole or in
part by the Borrower or any Eligible Subsidiary, as applicable, shall promptly
notify the Administrative Agent of such acceptance.
2A.7 REPORTS TO THE ADMINISTRATIVE AGENT. The Borrower shall deliver to
the Administrative Agent and each of the Lenders a report in respect of each
Alternative Currency Advance (an "Alternative Currency Advance Report") (i) on
the date on which such Alternative Currency Advance is made and (ii) on the date
on which any principal amount thereof is repaid, specifying for such Alternative
Currency Advance:
(A) the date such Alternative Currency Advance was or is being
made or on which such amount of principal is repaid;
(B) the Alternative Currency of such Alternate Currency
Advance;
(C) the principal amount of such Alternate Currency Advance or
principal payment (in such Alternative Currency); and
(D) the Dollar Equivalent of the Alternate Currency Advance
then made or remaining after such principal repayment and the Alternative
Currency Outstandings on such date after giving effect to such Alternate
Currency Advance or principal payment.
2A.8 REPAYMENT. The Borrower shall repay, or cause the applicable
Eligible Subsidiary to repay the principal amount of each Alternative Currency
Advance owing to each Lender on the last day of the Interest Period applicable
thereto.
2A.9 INTEREST. The Borrower or the applicable Eligible Subsidiary shall
pay interest on the unpaid principal amount of each Alternative Currency Advance
owing to each Lender from the date of such Alternative Currency Advance until
such principal amount shall be paid in full at a rate per annum equal at all
times during the Interest Period for such Alternative Currency Advance to the
rate per annum specified in the Alternative Currency Quote accepted by the
Borrower or any Eligible Subsidiary, as applicable, relating to such Alternative
Currency Advance, payable on the last day of the Interest Period relating
thereto; provided that any amount of principal which is not paid when due
(whether at stated maturity, by acceleration or otherwise) shall bear interest
from the date on which such amount is due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to the greater of (x)
2% per annum above the Prime Rate in effect from time to time and (y) 2% per
annum above the rate per annum required to be paid on such Alternative Currency
Advance immediately prior to the date on which such amount became due.
2A.10 MANDATORY PREPAYMENTS. (a) DOLLAR EQUIVALENT OF ALTERNATIVE
CURRENCY ADVANCES EXCEEDS $5,000,000. If on the last day of any calendar month
(or the last day of any Interest Period for any Alternative Currency Advance)
the Dollar Equivalent of the aggregate principal amount of all Alternative
Currency Advances then outstanding exceeds $5,000,000, the Borrower will prepay,
or cause any applicable Eligible Subsidiary to prepay, without any prepayment
penalty or premium, an aggregate principal amount of such Alternative Currency
Advances, ratably to the Lenders which shall have made such Alternative Currency
Advances, in an amount at least equal to such excess over
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$5,000,000, with accrued interest to the date of prepayment on the principal
amount prepaid, and the Borrower and any Eligible Subsidiary shall thereupon be
obligated to reimburse such Lenders in respect thereof pursuant to section
2A.12. Each such prepayment, if a partial payment of any Alternative Currency
Advances, shall be applied to the principal amounts of such Alternative Currency
Advances in inverse order of maturity.
(b) IF OUTSTANDING GENERAL REVOLVING LOANS, SWING LINE LOANS,
ALTERNATIVE CURRENCY ADVANCES AND LETTER OF CREDIT OUTSTANDINGS EXCEED TOTAL
GENERAL REVOLVING COMMITMENT. If on any date (after giving effect to any other
payments on such date) the sum of (i) the aggregate outstanding principal amount
of General Revolving Loans plus (ii) the aggregate principal amount of all Swing
Line Loans outstanding plus (iii) the aggregate amount of Letter of Credit
Outstandings, plus (iv) the Dollar Equivalent of the Alternative Currency
Outstandings exceeds the Total General Revolving Commitment as then in effect,
the Borrower shall prepay, without any prepayment penalty or premium, on such
date that principal amount of General Revolving Loans or Alternative Currency
Advances and, after General Revolving Loans and Alternative Currency Advances
have been paid in full, Unpaid Drawings, in an aggregate amount at least equal
to such excess and conforming in the case of partial prepayments of General
Revolving Loans to the requirements as to the amounts of partial prepayments of
General Revolving Loans which are contained in section 5.1, and the Borrower
shall be obligated to reimburse the Lenders pursuant to section 2A.12 and 2.11.
2A.11 REFUNDING OF, OR PARTICIPATION IN, ALTERNATIVE CURRENCY ADVANCES.
(a) If any Event of Default exists, any Lender having an Alternative Currency
Advance outstanding (any such Lender an "Alternative Currency Lender") may, in
its sole and absolute discretion, direct that the Alternative Currency Advances
owing to it be refunded by delivering a notice to such effect to the
Administrative Agent, specifying the aggregate principal amount thereof (a
"Notice of Alternative Currency Refunding"). Promptly upon receipt of a Notice
of Alternative Currency Refunding, the Administrative Agent shall give notice of
the contents thereof to the Lenders with General Revolving Commitments and,
unless an Event of Default specified in section 10.1(h) in respect of the
Borrower or any Eligible Subsidiary has occurred, also to the Borrower. Each
such Notice of Alternative Currency Refunding shall be deemed to constitute
delivery by the Borrower of a Notice of Borrowing requesting General Revolving
Loans consisting of Prime Rate Loans in the Dollar Equivalent amount of the
Alternative Currency Advance to which it relates. Each Lender with a General
Revolving Commitment (including the Alternative Currency Lender, in its capacity
as a Lender) hereby unconditionally agrees (notwithstanding that any of the
conditions specified in section 6.2 hereof (as if the making of an Alternative
Currency Advance were considered a Credit Event) or elsewhere in this Agreement
shall not have been satisfied, but subject to the provisions of paragraph (b)
below) to make a General Revolving Loan to the Borrower in an amount equal to
such Lender's General Revolving Facility Percentage of the Dollar Equivalent
aggregate amount of the Alternative Currency Advances to which such Notice of
Alternative Currency Refunding relates. Each such Lender shall make the amount
of such General Revolving Loan available to the Administrative Agent in
immediately available funds at the Payment Office not later than 2:00 P.M.
(local time at the Payment Office), if such notice is received by such Lender
prior to 11:00 A.M. (local time at its Domestic Lending Office), or not later
than 2:00 P.M. (local time at the Payment Office) on the next Business Day, if
such notice is received by such Lender after such time. The proceeds of such
General Revolving Loans shall be made immediately available to the Alternative
Currency Lender and applied by it to repay the principal amount of the
Alternative Currency Advances to which such Notice of Alternative Currency
Refunding related. The Borrower irrevocably and unconditionally agrees that,
notwithstanding anything to the contrary contained in this Agreement, General
Revolving Loans made as herein provided in response to a Notice of Alternative
Currency Refunding shall constitute General Revolving Loans hereunder consisting
of Prime Rate Loans.
(b) If prior to the time a General Revolving Loan would otherwise have
been made as provided above as a consequence of a Notice of Alternative Currency
Refunding, any of the events specified in section 10.1(h) shall have occurred in
respect of the Borrower or any Eligible Subsidiary or one or more of the Lenders
with General Revolving Commitments shall determine that it is legally
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prohibited from making a General Revolving Loan under such circumstances, each
Lender (other than the Alternative Currency Lender), or each Lender (other than
the Alternative Currency Lender) so prohibited, as the case may be, shall, on
the date such General Revolving Loan would have been made by it (the "Purchase
Date"), purchase an undivided participating interest in the outstanding
Alternative Currency Advances to which such Notice of Alternative Currency
Refunding related, in an amount (the "Alternative Currency Participation
Amount") equal to such Lender's General Revolving Facility Percentage of the
Dollar Equivalent of such Alternative Currency Advances. On the Purchase Date,
each such Lender or each such Lender so prohibited, as the case may be, shall
pay to the Alternative Currency Lender, in immediately available funds, such
Lender's Alternative Currency Participation Amount, and promptly upon receipt
thereof the Alternative Currency Lender shall, if requested by such other
Lender, deliver to such Lender a participation certificate, dated the date of
the Alternative Currency Lender's receipt of the funds from, and evidencing such
Lender's participating interest in such Alternative Currency Advances and its
Alternative Currency Participation Amount in respect thereof. If any amount
required to be paid by a Lender to the Alternative Currency Lender pursuant to
the above provisions in respect of any Alternative Currency Participation Amount
is not paid on the date such payment is due, such Lender shall pay to the
Alternative Currency Lender on demand interest on the amount not so paid at the
overnight Federal Funds Effective Rate from the due date until such amount is
paid in full.
(c) Whenever, at any time after the Alternative Currency Lender has
received from any other Lender such Lender's Alternative Currency Participation
Amount, the Alternative Currency Lender receives any payment from or on behalf
of the Borrower or any Eligible Subsidiary on account of the related Alternative
Currency Advances, the Alternative Currency Lender will promptly distribute to
such Lender its General Revolving Facility Percentage of such payment on account
of its Alternative Currency Participation Amount (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such
Lender's participating interest was outstanding and funded); provided, however,
that in the event such payment received by the Alternative Currency Lender is
required to be returned, such Lender will return to the Alternative Currency
Lender any portion thereof previously distributed to it by the Alternative
Currency Lender.
(d) Each Lender's obligation to make General Revolving Loans and/or to
purchase participations in connection with a Notice of Alternative Currency
Refunding (which shall in all events be within such Lender's Unutilized General
Revolving Commitment, taking into account all outstanding participations in
connection with Alternative Currency Refundings) shall be subject to the
conditions that:
(i) such Lender shall have received a Notice of Alternative
Currency Refunding complying with the provisions hereof, and
(ii) at the time the Alternative Currency Advances which are
the subject of such Notice of Alternative Currency Refunding were made, the
Alternative Currency Lender had no actual written notice from another Lender
that an Event of Default had occurred and was continuing,
but otherwise shall be absolute and unconditional, shall be solely for the
benefit of the Alternative Currency Lender, and shall not be affected by any
circumstance, including, without limitation, (A) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against any other
Lender, any Credit Party, or any other person, or any Credit Party may have
against any Lender or other person, as the case may be, for any reason
whatsoever; (B) the occurrence or continuance of a Default or Event of Default;
(C) any event or circumstance involving a Material Adverse Effect upon the
Borrower or any Eligible Subsidiary; (D) any breach of any Credit Document by
any party thereto; or (E) any other circumstance, happening or event, whether or
not similar to any of the foregoing.
2A.12. BREAKAGE COMPENSATION. The Borrower and each Eligible
Subsidiary, as applicable, shall compensate each applicable Lender, upon its
written request (which request shall set forth the
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detailed basis for requesting and the method of calculating such compensation),
for all reasonable losses, expenses and liabilities (including, without
limitation, any loss, expense or liability incurred by reason of the liquidation
or reemployment of deposits or other funds required by such Lender to fund its
Alternative Currency Advances) which such Lender may sustain: (i) if for any
reason (other than a default by such Lender or the Administrative Agent), a
borrowing of Alternative Currency Advances does not occur on a date specified
therefor in an Alternative Currency Quote Request; (ii) if any repayment or
prepayment of any of its Alternative Currency Advances occurs on a date which is
not the last day of an Interest Period applicable thereto; (iii) if any
prepayment of any of its Alternative Currency Advances is not made on any date
specified in a notice of prepayment given by the Borrower or any Eligible
Subsidiary as applicable; or (iv) as a consequence of any other default by the
Borrower or any Eligible Subsidiary, as applicable, to repay its Alternative
Currency Advances when required by the terms of this Agreement.
2A.13 INCREASED COSTS. (a) If, due to either (i) the introduction of or
any change (other than any change by way of imposition or increase of reserve
requirements, in the case of any Alternative Currency Advance, included in the
Eurocurrency Rate Reserve Percentage) in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender of agreeing to make or
making, funding or maintaining any Alternative Currency Advance, then the
Borrower or the applicable Eligible Subsidiary shall from time to time, upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender additional
amounts sufficient to compensate such Lender, on an after tax basis, for such
increased cost. A certificate as to the amount of such increased cost, submitted
to the Borrower and any applicable Eligible Subsidiary and the Administrative
Agent by such Lender, shall be conclusive and binding for all purposes, absent
demonstrable error.
2A.14 Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for any Lender or its applicable
Alternative Currency Lending Office to fund or maintain Alternative Currency
Advances hereunder, the Borrower or any Eligible Subsidiary, as applicable,
shall forthwith prepay in full all affected Alternative Currency Advances of all
affected Lenders which are then outstanding, together with interest accrued
thereon.
2A.15 PAYMENTS AND COMPUTATIONS. The Borrower or the applicable
Eligible Subsidiary shall make each payment in respect of each Alternative
Currency Advance not later than 11:00 A.M. (local time at the applicable
Alternative Currency Lending Office) on the day when due in the applicable
Alternative Currency to the applicable Lender, for the account of its applicable
Alternative Currency Lending Office, at its applicable Alternative Currency
Lending Office in same day funds, for application in accordance with the terms
of this Agreement.
2A.16 JUDGMENT CURRENCY. If for the purpose of obtaining judgment in
any court, it is necessary to convert a sum due from the Borrower or any
Eligible Subsidiary hereunder in the currency expressed to be payable herein
(the "specified currency") into another currency, the parties hereto agree, to
the fullest extent that they may effectively do so, that the rate of exchange
used shall be that at which in accordance with normal banking procedures the
Administrative Agent could purchase the specified currency with such other
currency at the Cleveland, Ohio office of KeyBank on the Business Day preceding
that on which final judgment is given. The obligations of the Borrower or any
Eligible Subsidiary in respect of any sum due to any Lender or the
Administrative Agent hereunder shall, notwithstanding any judgment in a currency
other than the specified currency, be discharged only to the extent that on the
Business Day following receipt by such Lender or the Administrative Agent (as
the case may be) of any sum adjudged to be so due in such other currency such
Lender or the Administrative Agent (as the case may be) may in accordance with
normal banking procedures purchase the specified currency with such other
currency; if the amount of the specified
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currency so purchased is less than the sum originally due to such Lender or the
Administrative Agent, as the case may be, in the specified currency, the
Borrower and each Eligible Subsidiary agrees, to the fullest extent that it may
effectively do so, as a separate obligation and notwithstanding any such
judgment, to indemnify such Lender or the Administrative Agent, as the case may
be, against such loss, and if the amount of the specified currency so purchased
exceeds (a) the sum originally due to any Lender or the Administrative Agent, as
the case may be, and (b) any amounts shared with other Lenders as a result of
allocations of such excess as a disproportionate payment to such Lender, such
Lender or the Administrative Agent, as the case may be, agrees to remit such
excess to the Borrower or any Eligible Subsidiary.
2A.17 CONDITIONS PRECEDENT TO ALTERNATIVE CURRENCY ADVANCES. The
obligations of any Lender to make any Alternative Currency Advance is subject,
at the time thereof, to the satisfaction of the conditions that at the time of
the Alternative Currency Advance, and also after giving effect thereto, (i)
there shall exist no Default or Event of Default and (ii) all representations
and warranties of the Credit Parties contained herein or in the other Credit
Documents shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and as of
the date of such Alternative Currency Advance, except to the extent that such
representations and warranties expressly relate to an earlier specified date, in
which case such representations and warranties shall have been true and correct
in all material respects as of the date when made; and, if any such Alternative
Currency Advance is being made to any Eligible Subsidiary, the obligations of
any Lender to make Alternative Currency Advances are further subject to the
conditions that (A) the Administrative Agent shall have received for the account
of the applicable Alternative Currency Lender a duly executed promissory note in
the form of Exhibit G-4 hereto (which promissory note shall constitute a "Note"
as defined in and for all purposes of this Agreement and the other Credit
Documents) of the applicable Eligible Subsidiary dated on or before the date the
Alternative Currency Advance is made; and (B) the Administrative Agent shall
have received an Election to Participate of such Eligible Subsidiary.
The acceptance of the benefits of each Alternative Currency Advance shall
constitute a representation and warranty by the Borrower to each of the Lenders
that all of the applicable conditions specified above.
2A.18 GUARANTEE BY THE BORROWER.
(A) GUARANTY. The Borrower hereby guarantees to each Lender
the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on all
Alternative Currency Advances made by the Lenders to any Eligible
Subsidiary and all other amounts from time to time owing to the Lenders
by each Eligible Subsidiary strictly in accordance with the terms
thereof (such obligations being herein collectively called the
"Alternative Currency Guaranteed Obligations"). The Borrower hereby
further agrees that if any Eligible Subsidiary shall fail to pay in
full when due (whether at stated maturity, by acceleration or
otherwise) any of the Alternative Currency Guaranteed Obligations, the
Borrower will promptly pay the same without any demand or notice
whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Alternative Currency Guaranteed Obligations, the
same will be promptly paid in full when due (whether at extended
maturity, by acceleration or otherwise) in accordance with the terms of
such extension or renewal.
(B) OBLIGATIONS UNCONDITIONAL. The obligations of the Borrower
under section 2A.18(a) are absolute and unconditional irrespective of
the value, genuineness, validity, regularity or enforceability of this
Agreement, the other Credit Documents or any other agreement or
instrument referred to herein or therein, or any substitution, release
or exchange of any other guarantee of or security for any of the
Alternative Currency Guaranteed Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance
whatsoever that might otherwise constitute a legal or equitable
discharge or
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defense of a surety or guarantor, it being the intent
of this section 2A.18 that the obligations of the
Borrower hereunder shall be absolute and
unconditional under any and all circumstances.
Without limiting the generality of the foregoing, it
is agreed that the occurrence of any one or more of
the following shall not alter or impair the liability
of the Borrower hereunder which shall remain absolute
and unconditional as described above:
(i) at any time or from time to
time, without notice to the Borrower, the
time for any performance of or compliance
with any of the Alternative Currency
Guaranteed Obligations shall be extended, or
such performance or compliance shall be
waived;
(ii) any of the acts mentioned in
any of the provisions hereof or of the other
Credit Documents or any other agreement or
instrument referred to herein or therein
shall be done or omitted; or
(iii) the maturity of any of the
Alternative Currency Guaranteed Obligations
shall be accelerated, or any of the
Alternative Currency Guaranteed Obligations
shall be modified, supplemented or amended
in any respect, or any right hereunder or
under the other Credit Documents or any
other agreement or instrument referred to
herein or therein shall be waived or any
other guarantee of any of the Alternative
Currency Guaranteed Obligations or any
security therefor shall be released or
exchanged in whole or in part or otherwise
dealt with.
The Borrower hereby expressly waives diligence,
presentment, demand of payment, protest and all
notices whatsoever, and any requirement that the
Administrative Agent or any Lender exhaust any right,
power or remedy or proceed against the Eligible
Subsidiary hereunder or under the other Credit
Documents or any other agreement or instrument
referred to herein or therein, or against any other
Person under any other guarantee of, or security for,
any of the Alternative Currency Guaranteed
Obligations.
(c) The obligations of the Borrower under
this section 2A.18 shall be automatically reinstated
if and to the extent that for any reason any payment
by or on behalf of any Eligible Subsidiary in respect
of the Alternative Currency Guaranteed Obligations is
rescinded or must be otherwise restored by any
reorganization or otherwise, and the Borrower agrees
that it will indemnify the Administrative Agent and
each Lender on demand for all reasonable costs and
expenses (including fees of counsel) incurred by the
Administrative Agent or such Lender in connection
with such recission or restoration, including any
such costs and expenses incurred in defending against
any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
1.4. CERTAIN REPRESENTATIONS. With retroactive effect to the original
Effective Date of the Credit Agreement, section 7.7(b) of the Credit Agreement
is amended to read in its entirety as follows:
(b) Except as may be permitted by section 9.6, no part of the
proceeds of any Credit Event will be used directly or indirectly to
purchase or carry Margin Stock, or to extend credit to others for the
purpose of purchasing or carrying any Margin Stock, in violation of any
of the provisions of Regulation T, U or X of the Board of Governors of
the Federal Reserve System. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying any
Margin Stock. At no time would more than 25% of the value of the assets
of the Borrower or of the Borrower and its consolidated Subsidiaries
that are subject to any "arrangement" (as such term is used in section
221.2(g) of such Regulation U) hereunder be represented by Margin
Stock.
1.5. REPRESENTATIONS AS TO ELIGIBLE SUBSIDIARIES. Effective as of the
Effective Date of this Amendment, a new section 7.21 is hereby added to the
Credit Agreement immediately succeeding section 7.20 as follows:
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7.21 REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES.
Each Eligible Subsidiary shall be deemed by the execution and delivery
of its Election to Participate to have represented and warranted as of
the date thereof that:
(a) CORPORATE EXISTENCE AND POWER. It is a company duly
formed, validly existing and in good standing under the laws of its
jurisdiction of formation and is a wholly-owned Subsidiary of the
Borrower.
(b) CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution and delivery by it of its Election to Participate and its
Notes, and the performance by it of this Agreement and its Notes, are
within its corporate or other similar powers, have been duly authorized
by all necessary corporate or other action, require no action by or in
respect of, or filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of its certificate of incorporation (or
other governing charter documents) or by-laws or of any agreement,
judgment, injunction, order, decree or other instrument binding upon
such Eligible Subsidiary or result in the creation or imposition of any
Lien on any asset of such Eligible Subsidiary or any of its
Subsidiaries.
(c) BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of such Eligible Subsidiary and its Notes, when
executed and delivered in accordance with this Agreement, will
constitute valid and binding obligations of such Eligible Subsidiary,
in each case enforceable in accordance with their respective terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies
may be limited by equitable principles of general applicability.
(d) TAXES. Except as disclosed in the Election to Participate
delivered by such Eligible Subsidiary, there is no income, stamp or
other tax of any country, or any taxing authority thereof or therein,
imposed by or in the nature of withholding or otherwise, which is
imposed on any payment to be made by such Eligible Subsidiary pursuant
hereto or on its Notes, or is imposed on or by virtue of the execution,
delivery or enforcement of its Election to Participate or of its Notes.
1.6. CONSOLIDATION, MERGER, ACQUISITIONS, ASSET SALES, ETC. With
retroactive effect to the original Effective Date of the Credit Agreement,
section 9.2(b) of the Credit Agreement is amended in its entirety to read as
follows:
(b) PERMITTED ACQUISITIONS. If no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the
Borrower or any Subsidiary may make any Acquisition (i) which is a
Permitted Acquisition, provided that all of the conditions contained in
the definition of the term Permitted Acquisition are satisfied or (ii)
which would, except for the failure to satisfy the condition set forth
in clause (i)(B) of the definition of Permitted Acquisition, otherwise
be a Permitted Acquisition, provided that the aggregate consideration
for all such Acquisitions permitted by this clause (ii) , including the
principal amount of any assumed Indebtedness and (without duplication)
any Indebtedness of the acquired person or persons, may not exceed
$5,000,000.
1.7. DIVIDENDS, ETC. Effective as of the Effective Date of this
Amendment, section 9.6 of the Credit Agreement is amended to read in its
entirety as follows:
9.6. DIVIDENDS, ETC. The Borrower will not (x) directly or
indirectly declare, order, pay or make any dividend (other than
dividends payable solely in capital stock of the Borrower) or other
distribution on or in respect of any capital stock of any class of the
Borrower, whether by reduction of capital or otherwise, or (y) directly
or indirectly make, or permit any of its Subsidiaries to directly or
indirectly make, any purchase, redemption, retirement or other
acquisition of any capital stock of any class of the Borrower (other
than for a consideration consisting solely of capital stock of the same
class of the Borrower) or of any warrants, rights or options to acquire
or any securities convertible into or exchangeable for any capital
stock of the Borrower, unless, immediately prior to and immediately
after giving effect to any such action, (i) no Default under section
10.1(a) or Event of Default shall have occurred and be continuing, (ii)
the Borrower is in compliance with section 9.7, and (iii) the aggregate
consideration paid by the Borrower and its Subsidiaries after June 30,
2000 for all purchases, redemptions, retirements or other acquisitions
of any capital stock of any class of the Borrower is
11
<PAGE> 12
not in excess of $5,000,000. In addition, the Borrower will not permit
any Subsidiary to directly or indirectly declare, order, pay or make
any dividend (other than dividends payable solely in the same class of
stock or other equity interests of such Subsidiary) or other
distribution on or in respect of any capital stock or other equity
interests of any class of any Subsidiary, whether by reduction of
capital or otherwise except that (i) any Wholly-Owned Subsidiary may
make dividend payments or other distributions to the Borrower and (ii)
any Subsidiary which is not a Wholly-Owned Subsidiary may make dividend
payments or other distributions in respect of capital stock or other
equity interests to any holder of such equity interests other than the
Borrower in an amount not to exceed, in any fiscal year, the amount
required by such holder to pay any currently due tax obligations in
respect of such equity interests.
2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lenders, the Swing Line
Lender, the Letter of Credit Issuer, the Administrative Agent and the
Syndication Agent as follows:
2.1. NET SHAPE TECHNOLOGIES ACQUISITION. Other than the condition set
forth in clause (i)(B) of the definition of "Permitted Acquisition"in the Credit
Agreement, the Acquisition by the Borrower or one of its Subsidiaries of a
majority of the outstanding equity interests of Net Shape Technologies, Ltd., an
Ohio limited liability company (the "Net Shape Acquisition"), satisfies all of
the conditions contained in the definition of Permitted Acquisition. The
Borrower acknowledges that the consideration paid in respect of the Net Shape
Acquisition reduces the amount available to be used for Acquisitions pursuant to
clause (ii) of section 9.2(b) of the Credit Agreement, as amended by this
Amendment. Upon consummation of the Net Shape Acquisition, the Borrower will
cause Net Shape Technologies, LLC, a Delaware limited liability company, to
execute and deliver to the Administrative Agent a Joinder Supplement to
Subsidiary Guarantee, together with resolutions of the Board of Directors of
such Subsidiary, certified by the Secretary or Assistant Secretary of such
Subsidiary as duly adopted and in full force and effect, authorizing the
execution and delivery of such Joinder Supplement.
2.2. AUTHORIZATION AND VALIDITY OF AMENDMENT, ETC. This Amendment has
been duly authorized by all necessary corporate action on the part of the
Borrower, has been duly executed and delivered by a duly authorized officer of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms, except to the
extent that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws generally affecting
creditors' rights and by equitable principles (regardless of whether enforcement
is sought in equity or at law).
2.3. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Credit Parties contained in the Credit Agreement or in the other Credit
Documents are true and correct in all material respects on and as of the date
hereof as though made on and as of the date hereof, except to the extent that
such representations and warranties expressly relate to an earlier specified
date, in which case such representations and warranties are hereby reaffirmed as
true and correct in all material respects as of the date when made.
2.4. NO EVENT OF DEFAULT. No condition or event has occurred or exists
which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
2.5. COMPLIANCE. The Borrower is in full compliance with all covenants
and agreements contained in the Credit Agreement, as amended hereby, and the
other Credit Documents to which it is a party; and without limitation of the
foregoing, each Subsidiary of the Borrower which, as of the date hereof, is
required to be a Subsidiary Guarantor, has as on or prior to the date hereof
become a Subsidiary Guarantor under the Subsidiary Guaranty.
2.6. FINANCIAL STATEMENTS, ETC. The Borrower has furnished to the
Lenders and the Administrative Agent complete and correct copies of (a) the
audited consolidated balance sheets of the Borrower and its consolidated
subsidiaries as of December 31, 1998, and December 31, 1999, and the related
audited consolidated statements of income, stockholders' equity, and cash flows
for the fiscal years then ended, accompanied by the unqualified report thereon
of the Borrower's independent accountants; and (b) the unaudited condensed
consolidated balance sheets of the Borrower and its consolidated subsidiaries as
of June 30, 1999, and the related unaudited condensed consolidated statements of
12
<PAGE> 13
income and of cash flows of the Borrower and its consolidated subsidiaries for
the fiscal quarter or quarters then ended, as contained in the Form 10-Q
Quarterly Report of the Borrower filed with the SEC. All such financial
statements have been prepared in accordance with GAAP, consistently applied
(except as stated therein), and fairly present in all material respects the
financial position of the Borrower and its consolidated subsidiaries as of the
respective dates indicated and the consolidated results of their operations and
cash flows for the respective periods indicated, subject in the case of any such
financial statements which are unaudited, to normal audit adjustments, none of
which could reasonably be expected to have a Material Adverse Effect.
3. RATIFICATIONS.
Except as expressly modified and superseded by this Amendment, the
terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
4. BINDING EFFECT.
This Amendment shall become effective on a date (the "Effective Date"),
on or before November 24, 2000, if the following conditions shall have been
satisfied on and as of such date:
(a) this Amendment shall have been executed by the Borrower
and the Administrative Agent, and counterparts hereof as so executed
shall have been delivered to the Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have
been executed by the Credit Parties named therein, and counterparts
thereof as so executed shall have been delivered to the Administrative
Agent;
(c) the Administrative Agent shall have been notified by the
Required Lenders that such Lenders have executed this Amendment (which
notification may be by facsimile or other written confirmation of such
execution);
(d) each of Hawk MIM, Inc. and Tex Racing Enterprises, Inc., a
Delaware corporation, shall have duly executed and delivered to the
Administrative Agent a Joinder Supplement to Subsidiary Guarantee,
together with resolutions of the Board of Directors of each such
Subsidiary, certified by the Secretary or Assistant Secretary of such
Subsidiary as duly adopted and in full force and effect, authorizing
the execution and delivery of such Joinder Supplement; and
(e) the Borrower shall have delivered to the Administrative
Agent an Election to Participate with respect to S.K. Wellman, S.p.A.;
and thereafter this Amendment shall be binding upon and inure to the benefit of
the Borrower, each Lender, the Swing Line Lender, the Letter of Credit Issuers,
the Syndication Agent and the Administrative Agent and their respective
successors and assigns. After this Amendment becomes effective, the
Administrative Agent will promptly furnish a copy of this Amendment to each
Lender and the Borrower and advise them of the Effective Date.
5. MISCELLANEOUS.
5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Amendment shall survive the execution and delivery
of this Amendment, and no investigation by the Administrative Agent or any
Lender or any subsequent Loan or other Credit Event shall affect the
representations and warranties or the right of the Administrative Agent or any
Lender to rely upon them.
5.2. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and
all other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
13
<PAGE> 14
5.3. EXPENSES. As provided in the Credit Agreement, but without
limiting any terms or provisions thereof, the Borrower shall pay on demand all
reasonable costs and expenses incurred by the Administrative Agent in connection
with the preparation, negotiation, and execution of this Amendment, including
without limitation the reasonable costs and fees of the Administrative Agent's
special legal counsel, regardless of whether this Amendment becomes effective in
accordance with the terms hereof, and all reasonable costs and expenses incurred
by the Administrative Agent or any Lender in connection with the enforcement or
preservation of any rights under the Credit Agreement, as amended hereby.
5.4. SEVERABILITY. Any term or provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.5. APPLICABLE LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Ohio.
5.6. HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7. ENTIRE AGREEMENT. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
5.8. JURY TRIAL WAIVER. EACH OF THE PARTIES TO THIS AMENDMENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO
HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
5.9. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
14
<PAGE> 15
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
HAWK CORPORATION KEYBANK NATIONAL ASSOCIATION,
as a Lender, the Swing Line Lender, a Letter
of Credit Issuer, the Syndication Agent and
By: the Administrative Agent
--------------------------------------
Vice President-Finance
By:
Vice President
NATIONAL CITY BANK LaSALLE BANK, NATIONAL ASSOCIATION
By: By:
-------------------------------------- --------------------------------------------
Title: Title:
COMERICA BANK BANK ONE, NA
By: By:
-------------------------------------- --------------------------------------------
Title: Title:
HARRIS TRUST AND SAVINGS BANK
By:
--------------------------------------
Title:
</TABLE>
15
<PAGE> 16
ACKNOWLEDGMENT AND CONSENT
For the avoidance of doubt, and without limitation of the intent and
effect of sections 6 and 10 of the Subsidiary Guaranty (as such term is defined
in the Credit Agreement referred to in the Amendment No. 1 to Credit Agreement
(the "Amendment"), to which this Acknowledgment and Consent is appended), each
of the undersigned hereby unconditionally and irrevocably (i) acknowledges
receipt of a copy of the Credit Agreement and the Amendment, and (ii) consents
to all of the terms and provisions of the Credit Agreement as amended by the
Amendment.
Capitalized terms which are used herein without definition shall have
the respective meanings ascribed thereto in the Credit Agreement referred to
herein. This Acknowledgment and Consent is for the benefit of the Lenders and
the Administrative Agent, and their respective successors and assigns. No term
or provision of this Acknowledgment and Consent may be modified or otherwise
changed without the prior written consent of the Administrative Agent, given as
provided in the Credit Agreement. This Acknowledgment and Consent shall be
binding upon the successors and assigns of each of the undersigned. This
Acknowledgment and Consent may be executed by any of the undersigned in separate
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and
delivered this Acknowledgment and Consent as of the date of the Amendment
referred to herein.
FRICTION PRODUCTS CO.
S.K. WELLMAN CORP.
HELSEL, INC.
LOGAN METAL STAMPINGS, INC.
HUTCHINSON PRODUCTS CORPORATION
SINTERLOY CORPORATION
HAWK BRAKE, INC.
S. K. WELLMAN HOLDINGS, INC.
WELLMAN FRICTION PRODUCTS U. K. CORP.
CLEARFIELD POWDERED METALS, INC.
ALLEGHENY POWDER METALLURGY, INC.
QUARTER MASTER INDUSTRIES, INC.
HAWK MIM, INC.
TEX RACING ENTERPRISES, INC.
as Guarantors
By:
------------------------------------
a Vice President of, and on behalf
of, each of the above corporations
<PAGE> 17
HAWK CORPORATION
as Borrower
THE LENDERS NAMED HEREIN
as Lenders
And
[LOGO]
KEYBANK NATIONAL ASSOCIATION
as a Lender, the Swing Line Lender, a Letter of Credit Issuer
and as the Syndication Agent and the Administrative Agent
------------------------
AMENDMENT NO. 1
dated as of
November 22, 2000
to
CREDIT AGREEMENT
dated as of
May 1, 1998
------------------------
<PAGE> 18
EXHIBIT G-1
FORM OF ALTERNATIVE CURRENCY QUOTE REQUEST
<PAGE> 19
[Date]
To: KeyBank National Association
(the "Administrative Agent")
From: [Borrower or Eligible Subsidiary]
Re: Credit Agreement (the "Credit Agreement"), dated as of May 1,
1998, among Hawk Corporation, the Lenders party thereto and
the Administrative Agent
We hereby give notice pursuant to section 2A of the Credit Agreement
that we request Alternative Currency Quotes for the following proposed
Alternative Currency Advance(s):
PRINCIPAL AMOUNT ALTERNATIVE CURRENCY INTEREST PERIOD
Terms used herein have the meanings assigned to them in the Credit
Agreement.
[BORROWER OR ELIGIBLE SUBSIDIARY]
By:
------------------------------
Name:
Title:
<PAGE> 20
EXHIBIT G-2
FORM OF INVITATION FOR ALTERNATIVE CURRENCY QUOTE
<PAGE> 21
To: [Name of Lender]
Re: Invitation for Alternative Currency Quotes
to [Borrower or Eligible Subsidiary]
Pursuant to section 2A of the Credit Agreement, dated as of May 1,
1998, among Hawk Corporation, the Lenders parties thereto and the undersigned,
as Administrative Agent, we are pleased on behalf of [Borrower or Eligible
Subsidiary ]to invite you to submit Alternative Currency Quotes to [Borrower or
Eligible Subsidiary] for the following proposed Alternative Currency Advance(s)
:
Date of Alternative Currency Advance(s):__________________
PRINCIPAL AMOUNT ALTERNATIVE CURRENCY INTEREST PERIOD
Please respond to this invitation to the Borrower by no later than 2:00
P.M. (Cleveland, Ohio time) on [date].
KEYBANK NATIONAL ASSOCIATION
By:
---------------------------
Authorized Officer
<PAGE> 22
EXHIBIT G-3
FORM OF ALTERNATIVE CURRENCY QUOTE
<PAGE> 23
[Date]
To: [Borrower or Eligible Subsidiary]
(the "Borrower")
Re: Alternative Currency Quotes
In response to the invitation by KeyBank National Association on your
behalf dated , 200_, we hereby make the following Alternative Currency Quote on
the following terms:
1. Quoting Bank:_____________________
2. Person to contact at Quoting Bank:___________________________
3. Date of Alternative Currency Advance(s): (*)_________________
4. Alternative Currency Lending Office: (**)____________________
5. We hereby offer to make Alternative Currency Advance(s) in the
following principal amounts, for the following Interest Periods and at
the following rates:___________________
PRINCIPAL ALTERNATIVE INTEREST INTEREST
AMOUNT(***) CURRENCY PERIOD RATE
6. Prepayment: [not] permitted [on 3 Applicable Alternative Currency
Business Days' notice].
Very truly yours,
[NAME OF BANK]
Dated:__________________________
By:
--------------------------
Authorized Officer
- -------------
* As specified in the related Invitation.
** Specify Alternative Currency Lending Office with respect to each
Alternative Currency.
*** Principal amount bid for each Interest Period and each Alternative
Currency may not exceed principal amount requested. Specify aggregate
limitation if the sum of the individual offers exceeds the amount the
Lender is willing to lend.
<PAGE> 24
EXHIBIT G-4
FORM OF ALTERNATIVE CURRENCY NOTE
<PAGE> 25
ALTERNATIVE CURRENCY NOTE
Cleveland, Ohio
_________, 2000
FOR VALUE RECEIVED, the undersigned [insert name of Eligible
Subsidiary]., a[ ] company (herein, together with its successors and assigns,
the "Obligor"), hereby promises to pay to the order of (the "Lender"), in an
Alternative Currency (such term and certain other capitalized terms used herein
without definition shall have the respective meanings ascribed thereto in the
Credit Agreement referred to below), in immediately available funds, at the
Payment Office of KeyBank National Association (the "Administrative Agent"), on
the last day of the Interest Period related to such Alternative Currency
Advance, the aggregate principal amount of all Alternative Currency Advances
made by the Lender pursuant to the Credit Agreement referred to below.
The Obligor promises also to pay interest on the unpaid principal
amount of each Alternative Currency Advance made by the Lender at said office
from the date hereof until paid at the rates and at the times provided in
section 2A.9 of the Credit Agreement and in the relevant Alternative Currency.
This Note is one of the Notes referred to in the Credit Agreement,
dated as of May 1, 1998, among Hawk Corporation, the financial institutions from
time to time party thereto (including the Lender), and KeyBank National
Association, as Administrative Agent (as from time to time in effect, the
"Credit Agreement"), and is entitled to the benefits thereof and of the other
Credit Documents. As provided in the Credit Agreement, this Note is subject to
mandatory prepayment prior to the Maturity Date, in whole or in part.
In case an Event of Default shall occur and be continuing, the
principal of and accrued interest on this Note may be declared to be due and
payable in the manner and with the effect provided in the Credit Agreement.
The Obligor hereby waives presentment, demand, protest or notice of any
kind in connection with this Note. No failure to exercise, or delay in
exercising, any rights hereunder on the part of the holder hereof shall operate
as a waiver of any such rights.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF OHIO.
[ELIGIBLE SUBSIDIARY]
By:
------------------------------------
Title:
<PAGE> 26
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT AMOUNT
OF OF
DATE LOAN TYPE PRINCIPAL UNPAID
OF AND OF INTEREST PAID OR PRINCIPAL MADE
NOTATION CURRENCY LOAN PERIOD PREPAID BALANCE BY
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 27
EXHIBIT H-1
FORM OF ELECTION TO PARTICIPATE
<PAGE> 28
[Date]
KEYBANK NATIONAL ASSOCIATION, as Administrative Agent
for the Lenders under the Credit Agreement, dated
as of May 1, 1998, among Hawk Corporation, the
Lenders party thereto and the Administrative Agent
(the "Credit Agreement")
Ladies and Gentlemen:
Reference is made to the Credit Agreement described above. Terms not
defined herein which are defined in the Credit Agreement shall have for the
purposes hereof the meaning provided therein.
1. The undersigned, [name of Eligible Subsidiary], a [jurisdiction of
incorporation] corporation, hereby elects to be an Eligible Subsidiary for
purposes of the Credit Agreement effective from the date hereof until an
Election to Terminate shall have been delivered on behalf of the undersigned in
accordance with the Credit Agreement. The undersigned confirms that the
representations and warranties set forth in section 7.21 of the Credit Agreement
are true and correct as to the undersigned as of the date hereof, and the
undersigned hereby agrees to perform all the obligations of an Eligible
Subsidiary under, and to be bound in all respects by the terms of, the Credit
Agreement including without limitation section 12. 8 thereof, as if the
undersigned were a signatory party thereto.
2. The address to which all notices to the undersigned under the Credit
Agreement should be directed is:_______________________________________________
3. [Other than as set forth in paragraph 4 hereof,] there is no income,
stamp or other tax of [jurisdiction of incorporation and, if different,
principal place of business], or any taxing authority thereof or therein,
imposed by or in the nature of withholding or otherwise, which is imposed on any
payment to be made by the undersigned pursuant to the Credit Agreement or its
Notes, or is imposed on or by virtue of the execution, delivery or enforcement
of its Election to Participate or of its Notes.
[4. Tax disclosure]
5. This instrument shall be construed in accordance with and governed
by the laws of the State of Ohio. This instrument may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Very truly yours,
[NAME OF ELIGIBLE SUBSIDIARY]
By:
----------------------------
Name:
Title:
<PAGE> 29
The undersigned hereby confirms that (i) [name of Eligible Subsidiary]
is an Eligible Subsidiary for purposes of the Credit Agreement described above
and (ii) the representations and warranties set forth in section 7.21 of the
Credit Agreement are true and correct as to [name of Eligible Subsidiary] as of
the date hereof.
HAWK CORPORATION
By:
--------------------------
Name:
Title:
Receipt of the above Election to Participate is hereby acknowledged on
and as of the date set forth above.
KEYBANK NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
By:
--------------------------
Name:
Title:
<PAGE> 30
EXHIBIT H-2
FORM OF ELECTION TO TERMINATE
<PAGE> 31
[Date]
KEYBANK NATIONAL ASSOCIATION, as Administrative Agent
for the Lenders under the Credit Agreement, dated
as of May 1, 1998, among Hawk Corporation, the
Lenders party thereto and the Administrative Agent
(the "Credit Agreement")
Ladies and Gentlemen:
Reference is made to the Credit Agreement described above. Terms not
defined herein which are defined in the Credit Agreement shall have for the
purposes hereof the meaning provided therein.
The undersigned, [name of Eligible Subsidiary], a [jurisdiction of
incorporation] corporation, hereby elects to terminate its status as an Eligible
Subsidiary for purposes of the Credit Agreement effective as of the date hereof.
The undersigned hereby represents and warrants that all principal and interest
on all Notes of the undersigned and all other amounts payable by the undersigned
pursuant to the Credit Agreement have been paid in full on or prior to the date
hereof. Notwithstanding the foregoing, this Election to Terminate shall not
affect any obligation of the undersigned under the Credit Agreement of under any
Note heretofore incurred.
This instrument shall be construed in accordance with and governed by
the laws of the Sate of Ohio.
This instrument may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
Very truly yours,
[NAME OF ELIGIBLE SUBSIDIARY]
By:
--------------------------
Name:
Title:
The undersigned hereby confirms that the status of [name of Eligible
Subsidiary] as an Eligible Subsidiary for purposes of the Credit Agreement
described above is terminated as of the date hereof.
HAWK CORPORATION
By:
--------------------------
Name:
Title:
<PAGE> 32
Receipt of the above Election to Terminate is hereby acknowledged on and as of
the date set forth above.
KEYBANK NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
By:
--------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>3
<FILENAME>l87006aex10-15.txt
<DESCRIPTION>EXHIBIT 10.15
<TEXT>
<PAGE> 1
Exhibit 10.15
HAWK CORPORATION
2000 LONG TERM INCENTIVE PLAN
SECTION 1. PURPOSE. The purposes of the Hawk Corporation 2000 Long Term
Incentive Plan (the "Plan") are to encourage employees of Hawk Corporation (the
"Company") to acquire a proprietary and vested interest in the growth and
performance of the Company, to generate an increased incentive to contribute to
the Company's future success and prosperity, thus enhancing the value of the
Company for the benefit of share owners, and to enhance the ability of the
Company to attract and retain individuals of exceptional managerial talent upon
whom, in large measure, the sustained progress, growth and profitability of the
Company depends.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall
have the meanings set forth below:
(a) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share, Performance Unit, Dividend Equivalent, Other
Stock Unit Award, or any other right, interest, or option relating to Shares or
other securities of the Company granted pursuant to the provisions of the Plan.
(b) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Award granted by the Committee
hereunder and signed by both the Company and the Participant.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Change in Control" shall mean the following:
(i) In the event of a Change in Control (a defined below)
of the Company, all Options then outstanding shall
become fully exercisable as of the date of the Change
in Control, whether or not then exercisable (subject
to the limitation that any Award which has been
outstanding less than six (6) months on the date of
the Change in Control shall not be afforded such
treatment); provided, however, that this provision
shall not apply to any Change in Control when
expressly provided otherwise by a three-fourths vote
of the Whole Board, but only if a majority of the
members of the Board then in office and acting upon
such matters shall be Continuing Directors.
(ii) A Change in Control of the Company shall have
occurred when any Acquiring Person (other than (i)
the Company or any Subsidiary, (ii) any employee
benefit plan of the Company or any Subsidiary or any
trustee of or fiduciary with respect to any such plan
when acting in such capacity, or (iii) any person
who, on the Effective Date of the Plan, is an
Affiliate of this Company and owning in excess of ten
percent (10%) of the outstanding Shares of the
Company and the respective successors,
<PAGE> 2
executors, legal representatives, heirs and legal
assigns of such person), alone or together with its
Affiliates and Associates, has acquired or obtained
the right to acquire the beneficial ownership of
twenty-five percent (25%) or more of the Shares then
outstanding (except pursuant to an offer for all
outstanding Shares of the Company at a price and upon
such terms and conditions as a majority of the
Continuing Directors determine to be in the best
interests of the Company and its shareholders (other
than the Acquiring Person or any Affiliate or
Associate thereof on whose behalf the offer is being
made)).
(iii) "Acquiring Person" means any person (any individual,
firm, corporation or other entity) who or which,
together with all Affiliates and Associates, has
acquired or obtained the right to acquire the
beneficial ownership of twenty-five percent (25%) or
more of the Shares then outstanding.
(iv) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
(v) "Continuing Director" means any person who was a
member of the Board on the Effective Date of the Plan
or thereafter was elected by the holders of common
shares or the holders of Series D Preferred Shares or
appointed by the Board or the holders of Series D
Preferred Shares prior to the date as of which any
person together which all Affiliates and Associates
became an Acquiring Person.
(vi) "Whole Board" means the total number o directors
which the Company would have if there were no
vacancies.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(f) "Committee" shall mean the Compensation Committee of the Board
(including any subcommittee of directors) that has the authority to establish
and administer performance goals described in Treas. Reg. ss. 1.162-27(e)(2).
(g) "Company" shall mean Hawk Corporation, a Delaware corporation.
(h) "Covered Employee" shall mean a "covered employee" within the
meaning of Section 162(m)(3) of the Code.
(i) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) promulgated by the Securities and Exchange Commission under the
Exchange Act or any successor definition adopted by the Securities and Exchange
Commission.
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<PAGE> 3
(j) "Dividend Equivalent" shall mean any right granted pursuant to
Section 14(h) hereof.
(k) "Employee" shall mean any employee of the Company, a subsidiary of
the Company, or of any Affiliate. Unless otherwise determined by the Committee
in its sole discretion, for purposes of the Plan, an Employee shall be
considered to have terminated employment and to have ceased to be an Employee if
his or her employer ceases to be an Affiliate, even if he or she continues to be
employed by such employer.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(m) "Fair Market Value" shall mean, with respect to any property, the
fair market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee.
(n) "Incentive Stock Option" shall mean an Option granted under Section
6 hereof that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.
(o) "Nonstatutory Stock Option" shall mean an Option granted under
Section 6 hereof that is not intended to be an Incentive Stock Option.
(p) "Option" shall mean any right granted to a Participant under the
Plan allowing such Participant to purchase Shares at such price or prices and
during such period or periods as the Committee shall determine.
(q) "Other Stock Unit Award" shall mean any right granted to a
Participant by the Committee pursuant to Section 10 hereof.
(r) "Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
(s) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.
(t) "Performance Period" shall mean that period established by the
Committee at the time any Performance Award is granted or at any time thereafter
during which any performance goals specified by the Committee with respect to
such Award are to be measured.
(u) "Performance Share" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated number of Shares, which
value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.
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<PAGE> 4
(v) "Performance Unit" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated amount of property other
than Shares, which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including, without limitation, cash,
Shares, or any combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at the time of
such grant or thereafter.
(w) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, limited
liability company, other entity or government or political subdivision thereof.
(x) "Restricted Stock" shall mean any Share issued with the restriction
that the holder may not sell, transfer, pledge, or assign such Share and with
such other restrictions as the Committee, in its sole discretion, may impose
(including, without limitation, any restriction on the right to vote such Share,
and the right to receive any cash dividends), which restrictions may lapse
separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
(y) "Restricted Stock Award" shall mean an award of Restricted Stock
under Section 8 hereof.
(z) "Shares" shall mean the shares of common stock, $.01 par value, of
the Company and such other securities of the Company as the Committee may from
time to time determine.
(aa) "Stock Appreciation Right" shall mean any right granted to a
Participant pursuant to Section 7 hereof to receive, upon exercise by the
Participant, the excess of (i) the Fair Market Value of one Share on the date of
exercise or, if the Committee shall so determine in the case of any such right
other than one related to any Incentive Stock Option, at any time during a
specified period before the date of exercise over (ii) the grant price of the
right on the date of grant, or if granted in connection with an outstanding
Option on the date of grant of the related Option, as specified by the Committee
in its sole discretion, which, other than in the case of Substitute Awards,
shall not be less than the Fair Market Value of one Share on such date of grant
of the right or the related Option, as the case may be. Any payment by the
Company in respect of such right may be made in cash, Shares, other property, or
any combination thereof, as the Committee, in its sole discretion, shall
determine.
(bb) "Subsidiary" shall mean any corporation, partnership, limited
liability company or business trust, control of which is owned directly or
indirectly by the Company, provided, for the purposes of any Incentive Stock
Option, it shall have the same meaning as the term "subsidiary corporation" as
defined in Section 424 of the Code.
SECTION 3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall have full power and authority, subject to such
orders or resolutions not inconsistent with the provisions of the Plan as may
from time to time be adopted by the Board, to: (i) select the Employees of the
Company to whom Awards may from time to time be granted
4
<PAGE> 5
hereunder; (ii) determine the type or types of Award to be granted to each
Participant hereunder; (iii) determine the number of Shares to be covered by
each Award granted hereunder; (iv) determine the terms and conditions, not
inconsistent with the provisions of the Plan, of any Award granted hereunder;
(v) determine whether, to what extent and under what circumstances Awards may be
settled in cash, Shares or other property or canceled or suspended; (vi)
determine whether, to what extent and under what circumstances cash, Shares and
other property and other amounts payable with respect to an Award under this
Plan shall be deferred either automatically or at the election of the
Participant; (vii) interpret and administer the Plan and any instrument or
agreement entered into under the Plan; (viii) establish such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for administration
of the Plan. Decisions of the Committee shall be final, conclusive and binding
upon all persons, including the Company, any Participant, any stockholder, and
any employee of the Company or of any Affiliate. A majority of the members of
the Committee may determine its actions and fix the time and place of its
meetings. Notwithstanding the foregoing, upon recommendation of the Committee,
in order to establish a basis for an exemption from Section 16(b) liability
pursuant to the Exchange Act, any Award may be submitted to the Board of
Directors for its approval.
SECTION 4. DURATION OF, AND SHARES SUBJECT TO PLAN.
(a) TERM. The Plan shall remain in effect until terminated by the
Board, provided, however, that no Incentive Stock Option may be granted more
than ten (10) years after the effective date of this Plan determined in
accordance with Section 14(I) of the Plan.
(b) SHARES SUBJECT TO THE PLAN. The maximum number of Shares in
respect for which Awards may be granted under the Plan, subject to adjustment as
provided in Section 4(c) of the Plan, is 700,000.
For the purpose of computing the total number of Shares available for
Awards under the Plan, there shall be counted against the foregoing limitations
the number of Shares issued and subject to issuance upon exercise or settlement
of Awards as of the dates on which such Awards are granted. The Shares which
were previously subject to Awards shall again be available to Awards under the
Plan if any such Awards are forfeited, terminated, expire unexercised, settled
in cash or exchanged for other Awards (to the extent of such forfeiture or
expiration of such Awards), or if the Shares subject thereto can otherwise no
longer be issued. Further, any Shares which are used as full or partial payment
to the Company by a Participant of the purchase price of Shares upon exercise of
a Stock Option shall again be available for Awards under the Plan.
Shares which may be issued under the Plan may be either authorized and
unissued shares or issued shares which have been reacquired by the Company. No
fractional shares shall be issued under the Plan.
5
<PAGE> 6
(c) CHANGES IN SHARES. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, reverse stock
split, spin off or similar transaction or other change in corporate structure
affecting the Shares, such adjustments and other substitutions shall be made to
the Plan and to Awards as the Committee in its sole discretion deems equitable
or appropriate, including without limitation such adjustments in the aggregate
number, class and kind of Shares which may be delivered under the Plan, in the
aggregate or to any one Participant, in the number, class, kind and option or
exercise price of Shares subject to outstanding Options, Stock Appreciation
Rights or other Awards granted under the Plan, and in the number, class and kind
of Shares subject to, Awards granted under the Plan (including, if the Committee
deems appropriate, the substitution of similar options to purchase the shares
of, or other awards denominated in the shares of, another company) as the
Committee may determine to be appropriate in its sole discretion, provided that
the number of Shares or other securities subject to any Award shall always be a
whole number.
SECTION 5. ELIGIBILITY. Any Employee (excluding any member of the
Committee) shall be eligible to be selected as a Participant.
SECTION 6. STOCK OPTIONS. Options may be granted hereunder to
Participants either alone or in addition to other Awards granted under the Plan.
Any Option granted under the Plan shall be evidenced by an Award Agreement in
such form as the Committee may from time to time approve. Any such Option shall
be subject to the following terms and conditions and to such additional terms
and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall deem desirable:
(a) OPTION PRICE. The purchase price per Share purchasable under an
Option shall be determined by the Committee in its sole discretion; provided
that such purchase price shall not be less than the Fair Market Value of the
Share on the date of the grant of the Option.
(b) OPTION PERIOD. The term of each Option shall be fixed by the
Committee in its sole discretion; provided that no Incentive Stock Option shall
be exercisable after the expiration of ten years from the date the Option is
granted.
(c) EXERCISABILITY. Options shall be exercisable at such time or times
as determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Stock Option
shall be exercisable during the year ending on the day before the first
anniversary date of the granting of the Incentive Stock Option.
(d) METHOD OF EXERCISE. Subject to the other provisions of the Plan and
any applicable Award Agreement, any Option may be exercised by the Participant
in whole or in part at such time or times, and the Participant may make payment
of the option price in such form or forms, including, without limitation,
payment by delivery of cash, Shares or other consideration (including, where
permitted by law and the Committee, Awards) having a Fair Market Value on the
exercise date equal to the total option price, or by any combination of cash,
Shares and other consideration as the Committee may specify in the applicable
Award Agreement.
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<PAGE> 7
(e) INCENTIVE STOCK OPTIONS. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Stock Options
held by any Participant which are exercisable for the first time by such
Participant during any calendar year under the Plan (and under any other benefit
plans of the Company or of any parent or subsidiary corporation of the Company)
shall not exceed $100,000 or, if different, the maximum limitation in effect at
the time of grant under Section 422 of the Code, or any successor provision, and
any regulations promulgated thereunder. The terms of any Incentive Stock Option
granted hereunder shall comply in all respects with the provisions of Section
422 of the Code, or any successor provision, and any regulations promulgated
thereunder.
SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted hereunder to Participants either alone or in addition to other Awards
granted under the Plan and may, but need not, relate to a specific Option
granted under Section 6. The provisions of Stock Appreciation Rights need not be
the same with respect to each recipient. Any Stock Appreciation Right related to
a Nonstatutory Stock Option may be granted at the same time such Option is
granted or at any time thereafter before exercise or expiration of such Option.
Any Stock Appreciation Right related to an Incentive Stock Option must be
granted at the same time such Option is granted. In the case of any Stock
Appreciation Right related to any Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of shares not covered by the Stock
Appreciation Right. Any Option related to any Stock Appreciation Right shall no
longer be exercisable to the extent the related Stock Appreciation Right has
been exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.
SECTION 8. RESTRICTED STOCK.
(a) ISSUANCE. Restricted Stock Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient.
(b) REGISTRATION. Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of Restricted Stock awarded under the Plan,
such certificate shall be registered in the name of the Participant, and shall
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.
(c) FORFEITURE. Except as otherwise determined by the Committee at the
time of grant, upon termination of employment for any reason during the
restriction period, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant and reacquired by
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<PAGE> 8
the Company; provided that except as provided in Section 12, in the event of a
Participant's retirement, permanent disability, other termination of employment
or death, or in cases of special circumstances, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interests of the
Company, waive in whole or in part any or all remaining restrictions with
respect to such Participant's shares of Restricted Stock. Unrestricted Shares,
evidenced in such manner as the Committee shall deem appropriate, shall be
issued to the grantee promptly after the period of forfeiture, as determined or
modified by the Committee, shall expire.
SECTION 9. PERFORMANCE AWARDS. Performance Awards may be issued
hereunder to Participants, for no cash consideration or for such minimum
consideration as may be required by applicable law, either alone or in addition
to other Awards granted under the Plan. The performance criteria to be achieved
during any Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Award. Except as
provided in Section 11, Performance Awards will be distributed only after the
end of the relevant Performance Period. Performance Awards may be paid in cash,
Shares, other property or any combination thereof, in the sole discretion of the
Committee at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid in a
lump sum or in installments following the close of the Performance Period.
SECTION 10. OTHER STOCK UNIT AWARDS.
(a) STOCK AND ADMINISTRATION. Other Awards of Shares and other Awards
that are valued in whole or in part by reference to, or are otherwise based on,
Shares or other property ("Other Stock Unit Awards") may be granted hereunder to
Participants, either alone or in addition to other Awards granted under the
Plan. Other Stock Unit Awards may be paid in Shares, other securities of the
Company, cash or any other form of property as the Committee shall determine.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Employees of the Company to whom and the
time or times at which such Awards shall be made, the number of shares of Stock
to be granted pursuant to such Awards, and all other conditions of the Awards.
The provisions of Other Stock Unit Awards need not be the same with respect to
each recipient.
(b) TERMS AND CONDITIONS. Shares (including securities convertible into
Shares) granted under this Section 10 may be issued for no cash consideration or
for such minimum consideration as may be required by applicable law; Shares
(including securities convertible into Shares) purchased pursuant to a purchase
right awarded under this Section 10 shall be purchased for such consideration as
the Committee shall in its sole discretion determine, which shall not be
less than the Fair Market Value of such Shares or other securities as of the
date such purchase right is awarded.
SECTION 11. CHANGE IN CONTROL PROVISIONS.
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<PAGE> 9
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, unless the Committee shall determine otherwise at the time of
grant with respect to a particular Award, in the event of a Change in Control:
(i) Any Options and Stock Appreciation Rights outstanding
as of the date such Change in Control is determined
to have occurred, and which are not then exercisable
and vested, shall become fully exercisable and vested
to the full extent of the original grant; provided,
that in the case of a Participant holding a Stock
Appreciation Right who is actually subject to Section
16(b) of the Exchange Act, such Stock Appreciation
Right shall not become fully vested and exercisable
unless it shall have been outstanding for at least
six months at the date such Change in Control is
determined to have occurred.
(ii) The restrictions and deferral limitations applicable
to any Restricted Stock shall lapse, and such
Restricted Stock shall become free of all
restrictions and limitations and become fully vested
and transferable to the full extent of the original
grant.
(iii) All Performance Awards shall be considered to be
earned and payable in full, and any deferral or other
restriction shall lapse and such Performance Awards
shall be immediately settled or distributed.
(iv) The restrictions and deferral limitations and other
conditions applicable to any Other Stock Awards or
any other Awards shall lapse, and such Other Stock
Awards or such other Awards shall become free of all
restrictions, limitations or conditions and become
fully vested and transferable to the full extent of
the original grant.
(b) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), if the Committee shall determine at, or at any time after,
the time of grant, a Participant holding an Option shall have the right, whether
or not the Option is fully exercisable and in lieu of the payment of the
purchase price for the Shares being purchased under the Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the Change in Control Price
per Share on the date of such election shall exceed the purchase price per Share
under the Option (the "Spread") multiplied by the number of Shares granted under
the Option as to which the right granted under this Section 11(b) shall have
been exercised; provided, that if the Change in Control is within six months of
the date of grant of a particular Option held by a Participant who is an officer
or director of the Company and is subject to Section 16(b) of the Exchange Act,
no such election shall be made by such Participant with respect to such Option
prior to six months from the date of grant. However, if the end of such 60-day
period from and after a Change in Control is within six months of the date of
grant of an Option held by a Participant who is an officer or director of the
Company and is subject to
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<PAGE> 10
Section 16(b) of the Exchange Act, such Option (unless theretofore
exercised) shall be canceled in exchange for a cash payment to the Participant,
effected on the day which is six months and one day after the date of grant of
such Option, equal to the Spread multiplied by the number of Shares granted
under the Option.
(c) Notwithstanding any other provision of this Plan, if any right
granted pursuant to this Plan would make a Change in Control transaction
ineligible for pooling-of-interests accounting under APB No. 16 that (after
giving effect to any other actions taken to cause such transaction to be
eligible for such pooling-of-interests accounting treatment) but for the nature
of such grant would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute for the cash payable pursuant to
such right Shares with a Fair Market Value equal to the cash that would
otherwise be payable pursuant thereto.
(d) Notwithstanding any other provision in this Plan to the contrary,
to the extent the payment of Awards to a Participant upon a Change in Control
constitutes an "excess parachute payment" within the meaning of Section 280G of
the Code such payment shall not be made to such extent (a "Parachute Payment").
The Committee will have complete discretion in determining the extent to which
the payment of Awards to a Participant constitutes a Parachute Payment and may
take any action permitted under Section 19 of this Plan to prevent all or any
portion of such payment from constituting a Parachute Payment.
SECTION 12. CODE SECTION 162(m) PROVISIONS.
(a) Notwithstanding any other provision of this Plan, if the Committee
determines at the time Restricted Stock, a Performance Award or an Other Stock
Unit Award is granted to a Participant that such Participant is, or is likely to
be at the time he or she recognizes income for federal income tax purposes in
connection with such Award, a Covered Employee, then the Committee may provide
that this Section 12 is applicable to such Award.
(b) If an Award is subject to this Section 12, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property
pursuant thereto, as applicable, shall be subject to the achievement of one or
more objective performance goals established by the Committee, which are
presently based on the attainment of a combination of the following: EBITDA,
earnings per share from continuing operations, internal growth, new product
development and economic value added, and may be modified to also include any of
the following: operating income, revenues, gross margin, return on operating
assets, return on equity, stock price appreciation, total stockholder return
(measured in terms of stock price appreciation and dividend growth), or cost
control, of the Company or the Affiliate or Subsidiary of the Company for or
within which the Participant is primarily employed. The Committee may modify the
goals of any Performance Award so as to enhance the incentive. Such Performance
Goals also may be based upon the attaining specified levels of Company
performance under one or more of the measures described above relative to the
performance of other corporations. Such performance goals shall be set by the
Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m) of the Code and the regulations thereunder.
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<PAGE> 11
(c) Notwithstanding any provision of this Plan other than Section 11,
with respect to any Award that is subject to this Section 12, the Committee may
not adjust upwards the amount payable pursuant to such Award, nor may it waive
the achievement of the applicable performance goals except in the case of the
death or disability of the Participant.
(d) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 12 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(B) of
the Code or any successor thereto.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made that would impair the
rights of an optionee or Participant under an Award theretofore granted, without
the optionee's or Participant's consent, or that without the approval of the
Stockholders would:
(a) except as is provided in Section 4(c) of the Plan, increase the
total number of shares reserved for the purpose of the Plan; or
(b) change the employees or class of employees eligible to participate
in the Plan.
The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without his consent. The Committee may also substitute
new Awards for previously granted Awards, including without limitation
previously granted Options having higher option prices.
SECTION 14. GENERAL PROVISIONS.
(a) Unless the Committee determines otherwise at the time the Award is
granted, no Award, and no Shares subject to Awards described in Section 10 which
have not been issued or as to which any applicable restriction, performance or
deferral period has not lapsed, may be sold, assigned, transferred, pledged or
otherwise encumbered, except by will or by the laws of descent and distribution;
provided that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary to exercise the
rights of the Participant with respect to any Award upon the death of the
Participant. Each Award shall be exercisable, during the Participant's lifetime,
only by the Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative.
(b) The term of each Award shall be for such period of months or years
from the date of its grant as may be determined by the Committee; provided that
in no event shall the term of any Incentive Stock Option or any Stock
Appreciation Right related to any Incentive Stock Option exceed a period of ten
(10) years from the date of its grant.
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<PAGE> 12
(c) No Employee or Participant shall have any claim to be granted any
Award under the Plan and there is no obligation for uniformity of treatment of
Employees or Participants under the Plan.
(d) The prospective recipient of any Award under the Plan shall not,
with respect to such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless such recipient shall
have executed an agreement or other instrument evidencing the Award and
delivered a fully executed copy thereof to the Company, and otherwise complied
with the then applicable terms and conditions.
(e) Except as provided in Section 12, the Committee shall be authorized
to make adjustments in Performance Award criteria or in the terms and conditions
of other Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations
or accounting principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem desirable to carry it into effect. In the event
the Company shall assume outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the acquisition of
another corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
(f) The Committee shall have full power and authority to determine
whether, to what extent and under what circumstances any Award shall be canceled
or suspended. In particular, but without limitation, all outstanding Awards to
any Participant shall be canceled if the Participant, without the consent of the
Committee, while employed by the Company or after termination of such
employment, becomes associated with, employed by, renders services to, or owns
any interest in (other than any nonsubstantial interest, as determined by the
Committee), any business that is in competition with the Company or with any
business in which the Company has a substantial interest as determined by the
Committee.
(g) All certificates for Shares delivered under the Plan pursuant to
any Award shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(h) The Committee shall be authorized to establish procedures pursuant
to which the payment of any Award may be deferred. Subject to the provisions of
this Plan and any Award Agreement, the recipient of an Award (including, without
limitation, any deferred Award) may, if so determined by the Committee, be
entitled to receive, currently or on a deferred basis, interest or dividends, or
interest or dividend equivalents, with respect to the number of shares covered
by the Award, as determined by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
12
<PAGE> 13
(i) Except as otherwise required in any applicable Award Agreement or
by the terms of the Plan, recipients of Awards under the Plan shall not be
required to make any payment or provide consideration other than the rendering
of services.
(j) The Company shall be authorized to withhold from any Award granted
or payment due under the Plan the amount of withholding taxes due in respect of
an Award or payment hereunder and to take such other action as may be necessary
in the opinion of the Company to satisfy all obligations for the payment of such
taxes. The Committee shall be authorized to establish procedures for election by
Participants to satisfy such withholding taxes by delivery of, or directing the
Company to retain, Shares.
(k) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is otherwise required; and such arrangements may be
either generally applicable or applicable only in specific cases.
(l) The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware and applicable Federal law.
(m) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
(n) Awards may be granted to Employees who are foreign nationals or
employed outside the United States, or both, on such terms and conditions
different from those specified in the Plan as may, in the judgment of the
Committee, be necessary or desirable in order to recognize differences in local
law or tax policy. The Committee also may impose conditions on the exercise or
vesting of Awards in order to minimize the Company's obligation with respect to
tax equalization for Employees on assignments outside their home country.
(o) Nothing in the Plan shall interfere with or limit in any way the
right of the Company, or any Subsidiary, to terminate any Participant's
employment at any time, nor to confer upon any Participant any right to continue
in the employ of the Company, or any Subsidiary. No Employee shall have a right
to continue in the employ of the Company or any Subsidiary. No employee shall
have a right to be selected as a Participant or, having been so selected, to
receive any future Awards.
(p) The maximum number of Shares that may be granted to any Participant
pursuant to an Option, Stock Appreciation Right or Other Stock Unit Award in any
one calendar year shall be 100,000. The maximum value of the property, including
cash, that may be paid or distributed to
13
<PAGE> 14
any Participant pursuant to a grant of a Performance Award, Restricted Stock
Award or Other Stock Unit Award made in any one calendar year shall be $2.5
million.
SECTION 15. EFFECTIVE DATE OF PLAN. The Plan shall be effective on the
date it is approved by the holders of common stock of the Company (the
"Effective Date").
SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the
Plan after 10 years from the Effective Date, but any Award theretofore granted
may extend beyond that date.
SECTION 17. COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Plan,
the granting and exercising of Awards thereunder, and the other obligations of
the Company under the Plan, shall be subject to all applicable Federal and State
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the granting and exercising of Awards, the issuance or delivery of
Shares under any Award or any other action permitted under the Plan to permit
the Company, with reasonable diligence, to complete such stock exchange listing
or registration or qualification of such Shares or other required action under
any Federal or State law, rule, or regulation and may require any Participant to
make such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Shares in compliance
with applicable laws, rules, and regulations. The Company shall not be obligated
by virtue of any provision of the Plan to recognize the exercise of any Award or
to otherwise sell or issue Shares in violation of any such laws, rules, or
regulations; and any postponement of the exercise or settlement of any Award
under this provision shall not extend the term of such Awards, and neither the
Company nor its directors or officers shall have any obligation or liability to
the Participant with respect to any Award (or Shares issuable thereunder) that
shall lapse because of such postponement.
SECTION 18. INDEMNIFICATION. Each person who is or shall have been a
member of the Committee or of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be made a party or
in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit, or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-laws, by contract,
as a matter of law, or otherwise.
SECTION 19. DEFERRALS. The Committee may postpone the exercising of
Awards, the issuance or delivery of Shares under any Award or any action
permitted under the Plan to
14
<PAGE> 15
prevent the Company, or any Subsidiary from being denied a Federal income tax
deduction with respect to any Award other than an Incentive Stock Option.
SECTION 20. NO CONSTRAINT ON CORPORATE ACTION. Nothing in this Plan
shall be construed (i) to limit, impair or otherwise affect the Company's right
or power to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or consolidate, or dissolve,
liquidate, sell or transfer all or any part of its business or assets, or (ii)
to limit the right or power of the Company, or any Subsidiary to take any
action which such entity deems to be necessary or appropriate.
15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>4
<FILENAME>l87006aex10-16.txt
<DESCRIPTION>EXHIBIT 10.16
<TEXT>
<PAGE> 1
Exhibit 10.16
HAWK CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN
1. PURPOSE
The Hawk Corporation Annual Incentive Compensation Plan (the "Plan") is
designed to attract, retain, and reward highly-qualified executives who are
important to the Company's success and to provide incentives relating directly
to the financial performance and long-term growth of the Company.
2. DEFINITIONS
(a) BONUS - The cash incentive awarded to an Executive Officer or Key
Employee pursuant to terms and conditions of the Plan.
(b) BOARD - The Board of Directors of Hawk Corporation.
(c) CHANGE IN CONTROL - The acquisition by any person or entity,
directly, indirectly, or beneficially, acting alone or in concert,
of more than twenty-five percent (25%) of the Class A Common Stock
of Hawk Corporation at any time outstanding.
(d) CODE - The Internal Revenue Code of 1986, as amended.
(e) COMMITTEE - The Compensation Committee of the Board, or such other
committee of the board that is designated by the Board to
administer the Plan, in compliance with requirements of Section
162(m) of the Code.
(f) COMPANY - Hawk Corporation and any other corporation in which Hawk
Corporation controls, directly or indirectly fifty percent (50%)
or more of the combined voting power of all classes of voting
securities.
(g) EXECUTIVE - An Executive Officer or Key Employee of the Company.
(h) EXECUTIVE OFFICER - Any officer of the Company subject to the
reporting requirements of Section 16 of the Securities Exchange
Act of 1934 ("Exchange Act").
(i) KEY EMPLOYEE - Any employee of the Company as may be designated by
the Committee.
1
<PAGE> 2
(j) PLAN - Hawk Corporation Annual Incentive Compensation Plan.
3. ELIGIBILITY
Only Executives are eligible for participation in the Plan.
4. ADMINISTRATION
The awards under the Plan shall be based on the profits of the Company as
determined by 5% of the Company's earnings before interest, depreciation, taxes
and amortization (EBITDA). Of this amount, 1.75% of EBITDA shall then be awarded
to each of Norman C. Harbert and Ronald E. Weinberg, the Company's Co-Chief
Executive Officers. In determining the Company's EBITDA, new acquisitions will
be eliminated from the calculation in the year of the acquisition and earnings
of acquired companies with earnouts will be disregarded.
The Committee shall administer the Plan and shall have full power and
authority to construe, interpret, and administer the Plan necessary to comply
with the requirements of Section 162(m) of the Code. The Committee's decisions
shall be final, conclusive, and binding upon all persons.
The Committee shall certify in writing prior to commencement of payment of
the bonus that the performance goal or goals under which the bonus is to be paid
has or have been achieved. The Committee in its sole discretion has the
authority to reduce the amount of a bonus otherwise payable to Messrs. Harbert
and Weinberg based on the following subjective factors: internal growth, new
product development, economic value added and earnings per share. No similar
factors are applied to other Executives. At the beginning of each fiscal year
consistent with the requirements of Section 162(m), the Committee shall: (i)
determine the Company's EBITDA; (ii) determine the Executive Officers and Key
Employees eligible to participate in the Plan for the fiscal year; (iii)
determine each Executive's bonus based on the Company's EBITDA for the fiscal
year; and (iv) determine the frequency at which each bonus will be paid when
attained.
In the event of a Change in Control, any bonuses earned but not yet paid
under the Plan shall be immediately payable. If the Executive ceases to be
employed by the Company, any unpaid bonuses shall be paid in accordance with the
Executive's termination agreement, and as otherwise determined by the Committee.
Unpaid bonuses may also be canceled at the discretion of the Committee.
The Committee may amend, modify, suspend, or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law. The Committee will seek shareholder approval or
any amendment determined to require shareholder approval or advisable under the
regulations of the Internal Revenue Service or other applicable law or
regulation.
2
<PAGE> 3
5. NONASSIGNABILITY
No Bonus or other benefit under the Plan shall be assignable or
transferable by the participant during the participant's lifetime.
6. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan shall confer upon any employee any right to continue in
the employ of the Company or shall interfere with or restrict in any way the
right of the Company to discharge an employee at any time for any reason
whatsoever, with or without good cause.
7. TERMINATION
The Committee may terminate or suspend at any time.
3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>5
<FILENAME>l87006aex21-1.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of Percent of
Parent Subsidiaries Organization Ownership
- ------ ------------ ------------ -----------
<S> <C> <C> <C>
Hawk Corporation Friction Products Co. Ohio 100%
Logan Metal Stampings, Inc. Ohio 100%
Helsel, Inc. Delaware 100%
S.K. Wellman Holdings, Inc. Delaware 100%
Sinterloy Corporation Delaware 100%
Clearfield Powdered Metals, Inc. Pennsylvania 100%
Hawk International FSC, Corp. Barbados 100%
Allegheny Powder Metallurgy, Inc. Pennsylvania 100%
Quarter Master Industries, Inc. Delaware 100%
Tex Racing Enterprises, Inc. Delaware 100%
Hawk MIM, Inc. Ohio 100%
Friction Products Co. Hawk Brake, Inc. Ohio 100%
Hawk Mauritius, Ltd. Hawk Composites (Suzhou)
Company Limited China 100%
Hawk MIM, Inc. Net Shape Technologies LLC Delaware 66.67%
Helsel, Inc. Hutchinson Products LLC Delaware 100%
Hutchinson Products de Mexico,
S. de R.L. de C.V. Mexico 95%
Hawk Mauritius, Ltd. Mauritius 100%
Hutchinson Products LLC Hutchinson Products de Mexico,
S. de R.L. de C.V. Mexico 5%
Hutchinson Products Monterrey,
S.A. de C.V. Mexico 5%
Hutchinson Products de Mexico, Hutchinson Products Monterrey,
S. de R.L. de C.V. S.A. de C.V. Mexico 95%
S.K. Wellman S.K. Wellman Corp. Delaware 100%
Holdings, Inc. Wellman Friction Products
U.K. Corp. Delaware 100%
S.K. Wellman S.p.A. Italy 95%
S.K. Wellman Corp. The S.K. Wellman Company
of Canada Limited Canada 100%
S.K. Wellman S.p.A. Italy 5%
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>l87006aex23-1.txt
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-60865) pertaining to the Hawk Corporation 1997 Stock Option Plan, in
the Registration Statement (Form S-8 No. 333-68583) pertaining to the Friction
Products Co. Profit Sharing Plan; S.K. Wellman Retirement Savings and Profit
Sharing Plan; Helsel, Inc. Employee's Retirement Plan; Helsel, Inc. Employee's
Savings and Investment Plan; Sinterloy Corporation 401(k) Plan; Hutchinson
Products LLC Employees' 401(k) Plan; and Hawk Corporation 401(k) Savings and
Retirement Plan and in the Registration Statement (Form S-8 No. 333-47220)
pertaining to the Hawk Corporation 2000 Long Term Incentive Plan of our report
dated February 9, 2001, with respect to the consolidated financial statements of
Hawk Corporation and subsidiaries included in this Annual Report (Form 10-K) for
the year ended December 31, 2000.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 23, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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